Governance of Innovation Systems

Governance of Innovation Systems
VOLUME 1: SYNTHESIS REPORT
Stimulating innovation is a key task for achieving sustainable economic growth. However,
recent developments have demonstrated that prevailing practices and institutions of
innovation governance have come under pressure. This publication examines the sources
Governance
of these pressures, and provides lessons on how governments adapt their governance
practices to achieve better coherence and co-ordination of policies to promote innovation.
The changes under way point to the emergence of a “third generation” of innovation policy:
of Innovation
a broadly based, strategic policy area, crossing traditional ministerial boundaries.
Companion volumes to this edition are:
Systems
GOVERNANCE OF INNOVATION SYSTEMS

Volume 2: Case Studies in Innovation Policy
Volume 3: Case Studies in Cross-Sectoral Policy VOLUME 1: SYNTHESIS REPORT
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AND DEVELOPMENT
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provides a setting where governments can compare policy experiences, seek answers to
common problems, identify good practice and work to co-ordinate domestic and
international policies.
The OECD member countries are: Australia, Austria, Belgium, Canada, the
Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland,
Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand,
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FOREWORD –3
Foreword
This publication is a synthesis of collaborative OECD work in the

MONIT project (Monitoring and Implementing National Innovation
Policies). It builds upon earlier OECD work on national innovation systems
and extends the analysis to include a broad agenda of governance issues that
governments face in further developing innovation policy. It analyses key
trends and issues such as policy coherence and integration, co-ordination,
stakeholder involvement and innovation policy learning. Its underlying
proposition is that governments will need to adapt their institutions and
innovation policy making in light of emerging pressures arising from more
dynamic and more complex economic and social developments.
The report was prepared under the aegis of CSTP and its working party
on Technology and Innovation Policy (TIP). It builds upon analytical work
carried out in countries participating in the MONIT project. In addition to an
analysis of governance of innovation systems, it includes summaries of
studies of governance and co-ordination relating to policies for sustainable
development and the information society. The author is Svend Otto Remøe,
who co-ordinated the MONIT project together with Mari Hjelt, Pim den
Hertog, Patries Boekholt and Wolfgang Polt; comments from the many
members of the MONIT network as well as from TIP delegates and the
CSTP are gratefully acknowledged.
GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005

TABLE OF CONTENTS –5
Table of Contents
Executive Summary ....................................................................................................... 7

Chapter 1
Introduction .................................................................................................................. 17
Chapter 2
The Analytical Perspective .......................................................................................... 21
Chapter 3
Innovation Policy Systems under Pressure .................................................................. 27
Chapter 4
Practices in Governance: Trends and Issues ................................................................ 43
Chapter 5
Implications for Policy: Towards National capabilities in Innovation Governance .... 67
Annex A
Participation ................................................................................................................. 71
Annex B
STI Performance of Participating Countries ................................................................ 72
Annex C
Short List of Indicators ................................................................................................ 84
Annex D
Long List of Indicators ................................................................................................ 86
Annex E
Summary of the MONIT Sustainable Development Policy Case Study ...................... 89
Annex F
Summary of the MONIT Information Society Policy Case Study ............................ 103
Bibliography .............................................................................................................. 113

EXECUTIVE SUMMARY –7
Executive Summary
New challenges
Innovation policy in OECD countries has mostly been seen as an

extension of R&D policy. As such it has been linked to research and
technological development. This remains the case, even though the systemic
approach developed under the label “National Innovation Systems” (NIS)
during the 1990s expanded this perspective to include interactive linkages in
the innovation system.
However, innovation has become increasingly important for OECD
economies owing to the influence of globalisation and structural change on
economic performance. Innovation policy has therefore received greater
attention as a generic policy area in which governments can promote an
innovative, flexible adaptation of their economies. Innovation governance
becomes the key challenge, and it requires developing the necessary
institutional set-ups, procedures and practices for agenda setting and
prioritisation, implementation and policy learning. The results of the
MONIT project are in line with an emerging third generation of innovation
policy that calls for more adaptive and flexible approaches to innovation
policy.
OECD governments face a number of challenges for reformulating and
governing their innovation policies. These include:
• Identifying path dependencies and inherent biases in priorities.
• Responding to new challenges with appropriate policy agendas.
• Learning about implicit priorities from broader policy or development
models.
Tensions in policy systems
There are often deep tensions in policy systems that governments should
be aware of and able to deal with. The increasing need for more coherent
innovation policy agendas spanning ministerial boundaries and including
many other policy areas will require reducing or at least addressing these
tensions. Tensions recognised in the MONIT project typically make policy
less coherent and less effective:

8 – EXECUTIVE SUMMARY
• Competing rationales: Individual policy domains, like R&D and

industrial policy, have their own communities with their specific
preferences, ideologies and educational backgrounds. As the status of
these domains differs across countries, countries’ policy systems have
different dominant rationales.
• Short-termism in resource allocation: Budgetary practices often
promote short-term thinking and in some cases undermine strategic,
long-term policy making.
• Strategic issues in new public management regimes: New public
management (NPM) has for several decades been a prevailing policy
approach and has often led to significant efficiency gains. However,
when priority is accorded to efficiency, strategic needs are typically
neglected, and long-term co-ordinated political action may be more
difficult.
• Different views and understanding of innovation policy: Different
ministries typically have different rationales. In addition, they often
have diverging views of innovation policy, its nature and its role.
• Different imperatives for different policy areas: Innovation policy
typically obeys an economic growth imperative. There are no system
limitations to the innovation-driven economy as defined in the NIS
approach or in innovation policy as such. This is a serious challenge
when innovation policy is supposed to be merged, co-ordinated or
integrated with policies such as environmental policy. The latter, or its
modern version, sustainable development policy, contains imperatives
linked to system limitations, such as the carrying capacity of the globe’s
ecosystem.
• Perceived division of labour between policy areas: Coherent innovation
policy may imply the take-up of innovation policy goals by other policy
areas. This is often referred to as a multi-goal policy. While this is
widely beneficial, policy makers may argue rightly that a given policy
area will lose effectiveness.
• Fragmentation and segmentation: A general trend in many countries, in
particular in the context of NPM, is increasing fragmentation and
segmentation at time when policy responses require more co-ordinated
action. NPM-based regimes typically lead to a flourishing of agencies,
decentralisation and devolution. Changes often occur through new
policies and institutions rather than major overhauls of the system, thus
adding to the existing complexity and fragmentation.

EXECUTIVE SUMMARY –9
• Competition and personal ambition: Tensions and contradictions in

policy systems arise not only from structural factors, but also stem from
individual policy makers’ ambition, competition for status and scarce
resources. This can lead to rivalry, turf wars and loss of coherence.
Adapting agenda-setting institutions and practices
Many countries have recently attempted to adapt their policy making to

achieve better take-up of a more horizontal innovation policy with a view to
greater coherence. Two broad tendencies emerge:
• Some governments have initiated broader framework policies to create a
better and more comprehensive agenda for innovation policy. In some
cases, these framework policies attempt to establish a new industrial
policy that gives innovation policy a specific role. In other cases, they
are more closely linked to a general policy for sustainable development.
In both cases, there arises the issue of policy hierarchy and the
determination of the rationale that is to serve as the lead principle. There
also emerges a tension between policy paradigms so that framework
policies collide with the embedded principles of autonomous, single
policy ministries.
• Other governments have refocused on their science, technology and
innovation-related institutions. Korea, for example, has elevated the
Minister of Science and Technology to the level of deputy prime
minister. Science and technology policy councils or various “innovation
platforms” are being introduced or re-examined with a view to creating
a broader and more focused innovation policy agenda. The experience
of Finland is relevant here: its long-standing Science and Technology
Policy Council has been of the utmost importance in creating a
legitimate environment for STI priorities, but its consensus orientation
makes it unable to deal effectively with the need to redirect innovation
policy. It is all the more difficult as Finnish innovation policy has been
defined and understood as technology policy.
Comprehensive “third generation” innovation policy assumes that
governments will be able to release the potential for innovation that is
embedded in other sectors or policy domains. In other words, it assumes that
coherence may be achieved by ensuring cross-sectoral optimisation of the
components of various sectors’ innovation policy through co-ordination and
integration.

Co-ordination practices
• Co-ordination is closely linked to agenda setting. When governments

can formulate strategic, long-term policies and visions that set a clear
and legitimate direction for priority setting, co-ordination is more
effective. When they do not, more co-ordination has to take place
through discrete, lower-level activities like communication tools,
consultation and arbitration.
• As many governments assume that ministerial practices may not
respond to rising pressures for co-ordination, a trend towards
“agencification” has developed. Thus, governments retain the basic
policy-making structure while inducing decentralisation, accountability
and flexibility at the agency level. They believe co-ordination is most
effective at the level of implementation, with agencies best equipped to
develop co-ordinated action with innovators.
As governments attempt to respond to greater external and internal
complexity and dynamism, policy co-ordination becomes the main means of
achieving greater coherence. As the MONIT work reveals, there are
difficulties:
• Co-ordination mechanisms may be static and short-term rather dynamic,
particularly when there is significant institutional fragmentation and
short-term considerations dominate agenda setting. Co-ordination may
simply concern annual budget-related decisions and be decentralised to
implementing institutions. This does not lead to long-term or strategic
policy priorities.
• Designing co-ordination mechanisms takes time and financial support.
A sense of urgency is necessary if efforts to co-ordinate policy are to
affect policy governance. Without a sense of urgency, co-ordinating
arrangements may fail and the system may build up resistance against
subsequent attempts.
• Co-ordination across policy domains: People are more decisive than
structures but structures support people. Well-functioning co-ordinating
activities require personal leadership and commitment, and policy
makers should ensure supportive structures for co-ordination activities
that rely on persons.
• Because different mechanisms are typically needed at different levels,
arrangements that function well at ministerial level may be less relevant
for lower levels. The need for different mechanisms for different types
of policy issues, brought out in the study of sustainable development,
EXECUTIVE SUMMARY – 11
seems to substantiate this. Moreover, successful co-ordination on one

level sometimes reduces the need for investing in co-ordination on
another.
• As for the innovation system, it is necessary to identify strong and weak
links. With appropriate analysis of co-ordination failures, targeted co-
ordination arrangements may be easier to design and implement.
Policy integration
A comprehensive innovation policy spanning ministerial boundaries

must have coherence, and policies should be mutually supportive.
Governments should therefore attempt to ensure that policies and their
instruments are aligned and reinforce each other. However, certain issues
embedded in policy or governance systems may make this integration
difficult:
• Lack of understanding of innovation policy in other policy domains
undermines communication in the co-ordination process.
• Strong traditions, in particular in the science policy domain, create
segmented “belief systems”.
• Different “schools of thought”, e.g. neo-classical economics and
innovation research, may block integration of innovation and economic
policy.
• Dynamic coupling of problems, policy proposals and politics resulting
in policy often takes place in the context of specific windows of
opportunity.
• Specific sectoral policies may be defined in ways that define others as
rivals.
• Strong political leadership is necessary to create common visions and a
legitimate basis for joint agendas.
• Stakeholders differ. S&T policy focuses on economic competitiveness
and its most relevant stakeholders are the business and research
communities. Their preferences and judgements may be different from
those of stakeholders in other areas.
• Drivers of policy formulation differ. For example, environment and
sustainable development policies are traditionally driven by
international agreements and global problems, whereas innovation
policy in most countries is very much driven by national concerns. S&T
policies traditionally aim at increasing national competitiveness and
wealth, whereas sustainable development policy is concerned with

improving international governance for tackling global problems. It
follows that S&T policy needs to be more alert to international
developments and sustainable development policies will have to tackle
national challenges.
• Policy measures differ. Sustainable development and environmental
policies mainly use regulatory and fiscal measures, often based on
international agreements, with strict, set targets and rules regarding
actions. In addition, they often rely on standards, voluntary agreements
and information sharing. In contrast, the main innovation policy
measure is resource allocation for R&D, and regulatory and fiscal
instruments have a much smaller role.
• Resources for actions differ. Political power is ultimately linked to
control of money. Typically, sustainable development and
environmental policies have very few resources for actions, while S&T
policies control the state budget for R&D allocations. This difference
may hamper efforts to design joint actions that require some reallocation
of resources.
The governance of innovation is knowledge-intensive. Achieving a
coherent cross-sectoral innovation policy will require organising the
production and use of policy-relevant knowledge and integrating it in
decision-making processes. Hence, policy learning is a key element of
innovation governance.
However, learning often receives less priority than it deserves. This is
well illustrated by Austrian survey data showing that 90% of respondents
thought that evaluations basically served as ex post legitimisation of
programmes. Policy learning is too often limited to ex post evaluations or
seen as an activity at the end of a policy cycle. To ensure co-ordination and
integration and achieve better governance, policy learning needs to be built
into the whole cycle of policy making.
This is particularly important when innovation policy is seen as
horizontal, i.e. when it crossing over into and is integrated with other policy
domains. A challenge is to generate and distribute knowledge that helps
develop joint understanding across policy cultures and rationales. While
horizontal coherence ensures a strategic, integrated focus on innovation
across boundaries and may be supported by cross-sectoral analysis and co-
ordinated reporting systems, vertical coherence ensures follow-up of sector-
or ministerial action plans. Comprehensive innovation policy has much to
gain from organising information and learning systems that help policy
makers develop an integrated focus on innovation.
The MONIT project delivers a strong message about the need to give
priority to policy learning and to develop a governance system that
stimulates and uses knowledge. Policy making should be less deliberate
(traditional, bureaucratic) and less downstream-oriented. It should rely less
on hierarchical control and information systems. The learning-oriented
governance system should rely more on flexible, decentralised management
practices, open learning and flexibility. A high degree of self-organisation
under a broader strategic objective would support such governance.
Building more intelligence into policy making
Evaluation and learning practices vary in the MONIT countries, but

some important lessons emerge from the material:
• Policy learning takes place mostly ex ante through mechanisms like
White Papers and less through ex post evaluation and follow-up of
programmes and institutional reforms.
• Most countries have organisational mechanisms that can enhance
learning if exploited properly. Task forces, teamwork, etc., should be
institutionalised to support a more learning-intensive governance style.
• Some countries engage in international learning beyond the usual
exchange mechanisms, e.g. in international bodies like OECD. For
example, the Netherlands commissioned a consulting group to conduct a
comparative international study of innovation governance in several
countries.
• It is increasingly necessary to conduct more systemic evaluations of
innovation policies to gain a better understanding of their interactions
and impacts.
• With more weight given to new public management in many countries,
the agency level should be well equipped with strategic and intelligence
functions to better co-ordinate governance levels.
• Fragmented governance structures often represent a loss of strategic
capacity, and governments should pay more attention to improving
mutual understanding of innovation-related issues across ministries.
• Institutions for knowledge production and policy analysis are often
linked to specific ministries and domains. This may reinforce a
segmented culture and make it more difficult to produce coherent,
policy-relevant knowledge.

• Implementation of monitoring and reporting systems that improves the

joint knowledge base for innovation governance may boost intelligence
and policy learning.
• Structural challenges will often require governance processes that
envision transitions in trajectories and infrastructures over a longer time
span.
Conclusions and implications
The MONIT results illustrate a number of dilemmas and their

implications for innovation policy governance in OECD countries.
Developments like globalisation, a more innovation-driven economy,
structural change, ageing of populations, tight fiscal constraints, etc., drive
governments to make long-term changes in their innovation systems and
socio-institutional changes in governance and policy-making:
• Significant tensions between disparate cultures, priorities and
constituencies show that traditional governance structures are under
pressure. Governments must manage these tensions with the aim of
creating a legitimate basis for coherent agenda setting.
• History counts and creates strong inertia for governance. Governments
need to renew governance and institutions, and these adjustments are
difficult to induce as corporatist and other influences participate in
prioritisation.
• Many countries feel the need to develop long-term strategies for growth
and change, but may lack the institutional resources and mechanisms to
do so. Perceived challenges are all too often not met owing to inherent
short-termism.
The material presented in this report points to a number of issues that
need to be addressed by third-generation innovation policy. These issues
point to some important government capabilities:
Balancing imperatives: Although innovation policy is generally
compatible with most other policy areas, some do not have the same growth
imperative as innovation policy. For example, social and environmental
policy and, more generally, policy for sustainable development have
different or even opposing objectives and imperatives. The increasing debate
on climate change and carrying capacity makes it necessary for government
to promote a growth model that limits negative environmental and social
pressures.

Creating visions that communicate: Political leadership has a strong

integrative potential. Visions play an important role, as they communicate
rationales, objectives and preferences, and as such create a legitimate basis
for priorities that may be difficult to argue for or justify. Effective visions
also facilitate co-ordination between ministries and agencies through joint
understanding of the goal of common efforts.
Developing appropriate knowledge bases: The innovation system
approach argues strongly for networking and collaboration between agents
in the system, as does the third-generation innovation system with its focus
on broader, more comprehensive agendas. To overcome inertia,
governments should examine the appropriateness of the knowledge base and
the extent to which it is segmented and slows the development of integrated
approaches.
Developing a strategic, horizontal approach: Many countries lack a
strategic focus, while others have established institutions such as science
and technology policy councils. The MONIT material indicates that even
these may be too narrow as they often concentrate on core science,
technology and innovation policies. A strategic, horizontal approach should
include and develop the innovation policy potential in other ministerial
domains and ensure a co-ordinated division of labour between them.
Integrating learning in governance practices: To achieve horizontal as
well as vertical coherence, governments need to ensure the availability of
strongly supportive knowledge. This points to managing an appropriate
knowledge base and using it for policy purposes, but the MONIT material
also implies that governance and co-ordination modes might be improved to
promote learning throughout the system. In particular, governments should
develop the means to introduce what this report calls inherent policy
making, which combines learning with decentralisation and increased self-
organisation.
Develop and implement action plans with monitoring and reporting
systems: Third-generation innovation policy cannot be properly
implemented without precise targets and intelligent follow-up. Governments
should increase their capacity to develop actions plans based on horizontal,
strategic approaches and translate these into concrete measures to be taken
by each ministry or agency. This will enhance vertical coherence, with
monitoring and indicator systems ensuring sound reporting of empirical
facts to the strategic apex.
Designing agencies: As most governments have introduced new public
management practices, the design of agencies and their interface with their
principals (ministries) have become crucial. Governments should design
agencies so as to create an effective division of labour between the two
layers. While governments should retain long-term policy competence, they

should give agencies sufficient flexibility to ensure coherent and timely
implementation of policies and programmes. In particular, micro-
management of agencies is counterproductive if the goal is to achieve
coherent governance.
Improving evaluation and learning: Evaluation practices in MONIT
countries are mostly piecemeal and far less geared towards informing policy
than they might be. In general, governments should create a solid basis for
evaluation and learning and make them part of the policy-making process.
This includes evaluation of broader reforms, as knowledge about their
impact on innovation is useful for feedback and policy formulation. A more
holistic approach to evaluation and learning can enhance feedback in the
governance system and lead to more effective policy.
Developing pragmatic public-private sector interfaces: Over the years,
the interface between the public and the private sector has shifted from
strong interventions by the state (up until the early 1980s) to much weaker
ones under new public management. While sound macroeconomic policies
and framework conditions are a must in modern innovation policy, there is
great potential for more pragmatic interfaces. These could include balanced
stakeholder mechanisms as well as cluster policies that offer a greater
potential for packaging a number of policy areas in a given cluster. Effective
interfaces are needed to leverage longer-term priorities and manage
transitions in structures and infrastructures.

INTRODUCTION – 17
Chapter 1
Introduction
OECD countries will increasingly need a new framework for

formulating and implementing innovation policies. Such a framework
builds upon the National Innovation Systems approach, but needs to
take into account how governments can expand innovation policy to
make it a broader, and strategic, policy domain.
The MONIT project
The OECD project on National Innovation Systems (NIS) was initiated

in 1995. Under the working party on Technology and Innovation Policy
(TIP), it explored ways in which to redirect innovation policy in OECD
countries, taking into account new insights into the innovation process
emerging at the time from innovation research. While many accepted that
the linear model of innovation did not capture the realities of the innovation
process, public policy was generally still founded upon the linear model and
its implications for policy. Hence, the OECD NIS project was an important
collaborative mechanism for generating new data based on an interactive
model of innovation and for developing a set of recommendations for public
policy.
Formally, the OECD NIS project ended in 2001. It had, over the years,
produced results that fed into other OECD work and had generated several
publications on industrial clusters, networks, human mobility as well as
synthesis reports addressing the renewal of innovation policy. However, the
final study (OECD, 2002) raised a critical question that became the starting
point for a new TIP activity: If the developed economies are moving
towards a more innovation-oriented and dynamic model, should the policy-
making modes of national governments remain largely the same? More
precisely, given the needed changes in the content of policy, how can or
should governments change their structures and processes to better
accommodate the dynamism of their environments?
To explore these issues, the OECD and its working party for
Technology and Innovation Policy (TIP) endorsed in 2002 a new
collaborative study called MONIT (monitoring and implementing national

18 – INTRODUCTION
innovation policies) to be carried out, like the NIS project, by voluntary

research activities conducted by countries willing to participate in various
focus groups.
The purpose of this publication is to identify new models of institutional
arrangements and practices for collaboration and co-operation. To
implement the NIS approach, governments need to reconsider their
traditional practices based on the linear model. To deal with the complexity
and interactions of the new environment, governments and their agencies
need to develop new means of co-operation and communication in order to
design policies that take into account the interests of many stakeholders and
institutional groups. This report therefore examines member countries’
recent efforts to create these new institutional arrangements and to find ways
to cut across institutional boundaries, ensure effective policy learning and
build collective capabilities for policy coherence.
Dynamic economies require adaptive governance
Over the past decades, innovation policy has received increasing

attention. This is a policy area that has changed markedly as understanding
of the linkages between economic development, innovation and
technological change has increased. Because of the greater interrelatedness
of innovation systems, innovation policy is no longer simply the purview of
science and technology (S&T) institutions but creates a more generic policy
agenda requiring broader, cross-ministerial attention. Some of the factors
relevant to the greater complexity of innovation policy are presented below.
First, understanding of the innovation process has changed, and the role
of innovation, technology and knowledge with it. Broadly speaking,
innovation policy has undergone three stages. The first generation of
innovation policy saw innovation as a linear process from basic research via
applied research and development (R&D) to market introduction of the
resulting products or technologies. Then, as empirical studies of the
innovation process showed, for example, that firms interacted with various
external organisations and relied heavily on their own value chains for
innovation-related knowledge and information, the view of the innovation
process shifted to what is currently known as the interactive or systemic
model of innovation. The second generation of innovation policy was based
on this national innovation systems (NIS) approach and was basically
developed through the 1990s (OECD 1999, 2002).
More recent OECD work (2002) pointed to a broader perspective on
innovation policy in which structural change and broader adaptation play a
central role. It raised the question: What then is the role of government? A

INTRODUCTION – 19
more dynamic innovation policy appears to imply a need to broaden the

focus from the original S&T platform to a more generic policy area in which
a number of ministries participate. In this third generation of innovation
policy, co-ordinated, strategic actions are needed to induce a coherent policy
framework for dynamic innovators and structural change.
Second, related trends compound the need for a broader governmental
role in innovation. Innovation is not a purely technological phenomenon, it
involves both technological and non-technological changes that bear on
economic and social development. Innovation may be organisational,
institutional, design-related or involve other significant changes having
economic value. Innovators are affected by incentive systems and
regulations that have various sources and rationales, and interfaces between
government and the private sector are evolving and gaining in importance.
For example, public-private partnerships and regional collaborative
structures are changing governance patterns in many countries. Some
governments are also arguing for better integration of innovation and
economic policy, as well as other policy areas, making innovation and
change a key concern of policy makers. This evolution also implies a greater
need for new approaches to steering or managing the innovation system as a
whole and for reducing costs to innovators and the economy arising from
incoherent or ineffective policies. Policy makers in other areas may want to
use innovation policy as a tool for achieving their own objectives, for
example when environmental or sustainable development policies are seen
as conflicting with an innovation policy geared towards economic growth. It
is important to see how seemingly conflicting policies may be integrated or
achieve a more effective interface.
The third generation of innovation policy
The aim of the MONIT project was to generate a body of policy-

relevant knowledge to help governments in OECD countries address
important governance issues. The first two generations of innovation policy
were linked to science and technology as the source of innovation.
Innovation policy as such has typically not been a specific policy area, and,
as will become evident in the following discussion, will have difficulty in
achieving a “place in the sun”, i.e. recognised and defended by a dedicated
ministry.
Still, today’s global, innovation-driven economy, as well as broad social
and environmental concerns related to growth, welfare distribution, etc.,
require governments to find new ways to promote a policy environment that
is conducive to greater dynamism and change. The third generation of
innovation policy (Lengrand et al., 2002) involves a broader focus in which
20 – INTRODUCTION
innovation is stimulated across a number of governmental or policy areas. It

builds upon its horizontal role by providing a strategic framework across
ministerial and institutional boundaries to ensure innovation and adaptation
within the context of sustainable social and economic development. While
innovation is typically viewed in terms of economic growth, a horizontal
innovation policy will need to balance this imperative against other,
sometimes conflicting, imperatives in policy areas such as social and
environmental policy. Hence, OECD countries will need a new framework
for innovation policy in which broad and partly conflicting issues may be
raised and dealt with. The present study is based on the assumption that such
a framework must address both the content of policy and the integration, co-
ordination or balancing of policies, as well as the policy-making processes
that need to be in place to create such a framework. This is discussed in
Chapter 2.
Project organisation and outputs
The Nordic countries were the driving force behind the MONIT project,
and Norway volunteered to take the role of lead country, with overall
responsibility to co-ordinate and steer the project. It was then decided to
broaden the lead role to ensure collaborative management of the project, and
Finland, Austria and Netherlands became co-leaders. In all, 13 countries
participated (see Annex A).
The project was initiated at a time when many governments were
increasingly concerned about the efficacy of their governance modes. Some
were engaged in institutional reforms or were launching strategic documents
and policy initiatives to help correct what were often perceived as obstacles
to better policy governance. Hence, some countries participating in the
MONIT project linked it to their ongoing reforms and initiatives. The
MONIT project has to some extent produced helpful material for those
national policy learning processes.
The MONIT project was organised in two core activities or work
packages. First, the main issues of innovation governance were studied and
served as the main basis of the analysis. Second, case studies were
undertaken of relevant policy areas, notably sustainable development,
information society, transport and regional affairs. The output from these
work packages is published as OECD proceedings (OECD, 2005a; 2005b,
respectively).

THE ANALYTICAL PERSPECTIVE – 21
Chapter 2
The Analytical Perspective
OECD countries require greater policy coherence. To achieve this, new

forms of governance must be developed in which “horizontalisation”
encompasses a broad range of policy areas, as well as mechanisms for
co-ordination and policy learning. This chapter describes the analytical
perspective taken in this report and includes an evolutionary perspective
on policy-making systems.
Critical issues for adaptive policy systems
A key point of departure is the vantage point of firms, as policies and

their incentives, disincentives and regulatory effects interact to create their
policy environment, which includes both core science, technology and
innovation (STI) policy areas like R&D and other, often more peripheral
policy areas that have consequences for a firm’s innovation. Governments
typically know too little about these interactions or how to correct or
accommodate policies to produce, if possible, a coherent whole.
Seen from this perspective, governments should seek to produce such an
outcome. However, they may be unable to do so, or may do so late and not
very effectively. Owing to the typically sector-based division of labour
between ministries, the extent to which governments are able to overcome
divisions and create what the MONIT project has termed horizontalisation
will vary.
Horizontalization
Horizontal interactions are combined with vertical ones. Vertical
interactions depict relationships between different layers of government
bodies, for example, between ministries and agencies or between ministries
and regional administrations. They are typically very important for policy
implementation, but lead to different governance structures. Recent
developments in governance underline this: new public management (NPM)
has been adopted to varying degrees throughout the industrialised world,

22 – THE ANALYTICAL PERSPECTIVE
leading to greater decentralisation. Still, the concept of a horizontal

innovation policy is essential as it accentuates the need to co-ordinate and
govern many policy domains to achieve better innovation policy.
Horizontalization involves both a broadening of goals beyond core STI
policy and a multi-sectoral approach (Table 2.1).
Horizontalization is not a goal in itself, but the degree to which
innovation policy is guided by a comprehensive national strategy in which
contributions from the various sectors are linked to achieve policy
coherence. The link between horizontalization and arrangements for co-
ordination and governance is crucial.
Table 2.1. A taxonomy of innovation policy
Goals Sectoral innovation policy Multi-sectoral innovation policy
Innovation policy, i.e. aimed Innovation policy in a limited sense Integrated STI policies
primarily at innovating industries (basically technology and industrial
and economic growth policies)
Innovation policy in a wider sense, Innovation policies in other sectoral Horizontal/comprehensive/integrat

i.e. aimed at economic growth and domains, e.g. innovation policies in ed or coherent/ systemic
quality of life health, innovation policies in the innovation policies
environment
Source: Pim den Hertog, Dialogic, Netherlands.
Policy coherence
Various internal and external tensions and pressures lead governments
to pay greater attention to policy coherence. Dynamism and complexity are
key elements and the result of globalisation, technological change, trade and
restructuring of economic activities, and greater dependence on knowledge
and innovation for economic development. In this context, policy coherence
should not be understood as characterised by a state of equilibrium but
rather by policies and institutions attuned to the changing requirements of
the activities and sectors they are supposed to influence.
Coherence is important for many reasons:1
• Coherent policies are more likely to be effective and more readily
applied in a consistent and equitable way.
1. From a discussion paper for the Centre of Government Network: “Government Coherence:
The Role of the Centre, OECD, PUMA.

• Governments are increasingly faced with complex and difficult issues,

which may affect different areas of society differently.
• Policies frequently have a range of objectives which cannot easily be
reconciled and may be in conflict.
• Owing to greater accountability and challenge, through parliaments,
civil society and the media, lack of coherence becomes readily apparent
and results in uncertainty and loss of confidence.
The concept has basically three dimensions:
• Horizontal coherence ensures that individual, or sectoral, policies, build
on each other and minimise inconsistencies in the case of (seemingly)
conflicting goals.
• Vertical coherence ensures that public outputs are consistent with the
original intentions of policy makers.
• Temporal coherence ensures that today’s policies continue to be
effective in the future by limiting potential incoherence and providing
guidance for change.
The importance of coherence is best seen from the point of view of the
innovating firm. If a firm is to innovate successfully, the system in which it
operates should in aggregate facilitate innovation. It is the total of its
interfaces with government agencies and policies that affects its innovative
capacity, and the net effect of diverse, and at times disparate, policy actions
constitutes a government’s actual “innovation policy”. It is, for example, of
little use that innovation agencies support an effort at innovation, if other
government agencies create obstacles by passing laws, implementing
standards or developing procedures that are incompatible with specific
innovation efforts.
Governance
Governance concerns the systems and practices that governments use to
set priorities and agendas, implement policies and obtain knowledge about
their impacts and effectiveness. The concept has received renewed attention
in the context of changing patterns of governing and policy making.
Governance implies a “change in the meaning of government, referring to
new processes of governing; or a changed condition of ordered rule; or the
new method by which society is governed” (Rhodes, 1996, pp. 652-653).
Stoker (1998) suggests that governance refers “to the development of
governing styles in which boundaries between and within public and private

sectors have become blurred”. He further offers five propositions related to

governance which are also at the heart of the MONIT project:
• Governance refers to a set of institutions and actors that are drawn from
but also outside government.
• Governance identifies the blurring of boundaries and responsibilities for
tackling social and economic issues.
• Governance identifies the power dependency involved in relationships
between institutions involved in collective action.
• Governance is about autonomous self-governing networks of actors.
• Governance recognises a capacity to get things done that does not rest
on the power of government to command or use its authority. It sees
government as able to use new tools and techniques to steer and guide.
Governance is an interactive process involving various forms of
partnerships, collaboration, competition and negotiation. It implicitly
addresses the issue of accountability, lack of transparency and representation
may create weaknesses.
Governance is linked to policy making, represented by a process-
oriented model which is referred to in the MONIT context as the policy
cycle. It concerns the ways in which the policy cycle is managed and
influenced. The policy cycle is defined in terms of three broad stages:
agenda setting and prioritisation; implementation; evaluation and learning.
For analytical purposes, the study of governance with respect to
innovation reflects the key stages of the policy cycle. As formulated, these
stages may suggest a policy-making process similar to that of the linear
model of innovation. However, this not the case, as the processes are
interlinked and should be viewed as elements of an interactive model. Co-
ordination, integration and communication in policy systems cut across
these stages or elements. Here, the stages illustrate the key elements in the
governance of innovation policy (or any other policy), and the aim of
MONIT and of this study is to identify the strengths and failures of the
systems that influence the policy-making process in order to provide
effective governance.
Governance capabilities are thus defined as the ability (Ohler et al.,
2005):
• To recognise system characteristics (strengths, weaknesses, problems,
development potential).
• To define the focus and the topics for political action (agenda setting).
• To make diverse players co-ordinate their activities in and beyond their

policy field (horizontalisation).
• To implement these policies.
• To learn from previous experience (e.g. from evaluation results).
• To make adjustments over the complete policy cycle.
Governance includes both formal and informal practices, and the policy
cycle is governed or otherwise influenced by:
• Traditions and culture.
• Policy co-ordination as formal practices for aligning disparate policies
along the policy cycle.
• Institutional adaptation.
• Horizontalisation, as the process of bridging and integrating innovation
policy across ministerial boundaries.
• Stakeholder involvement.
• Learning, intelligence and accountability.
Policy making: an evolutionary view
The approach to innovation systems taken in recent years (second

generation) has been fairly eclectic, adjusting to the need for practical
knowledge. Still, some theoretical foundations have been more important
than others. Systems theory and evolutionary economics have been useful
tools and will continue to be so in developing third-generation innovation
policy. However, as will be argued below, the current focus on policy
systems implies an expanded, although still pragmatic, approach.
The MONIT project builds on the assumption that national and global
economies are becoming more dynamic, innovation- and knowledge-driven,
and complex. It also assumes that governments need to respond, but in a
new manner. They need to be able to develop new capabilities if they are to
deliver coherent policies for a changing world. What are these capabilities?
What are their determinants? What are the sources of inertia and counter-
forces that will limit socio-institutional change?
It may be useful to distinguish between two broad approaches to policy
making. First, policy making may be seen as arranging exchanges. It views
people as individuals whose behaviour can be explained by their preferences
or interests. Collective policy-making is seen as bargaining behaviour, and
policies as negotiated outcomes. A key implication is that adjustments in

policies and governance will be smooth and quick, depending on the
interests, resources and powers of the individuals involved (e.g. March and
Olsen, 1996).
In the second approach, which is the one taken here, “social choices are
shaped, mediated and channelled by institutional arrangements” (Powell and
DiMaggio, 1991, p. 2). Behaviours and structures change slowly because
they are institutionalised. People in different institutions have different
preferences, and individual choice cannot be understood without reference
to the cultural and historical framework (March and Olsen, 1995).
Institutionalisation is understood as a “phenomenological process by which
certain social relationships and actions come to be taken for granted” and a
state of affairs in which shared understanding defines “what has meaning
and what actions are possible” (Zucker, 1983, p. 2; 1987). Cognitive and
cultural explanations are needed to gain a full understanding of institutions
and how they behave. Institutions are products of interpretations of their
environment, and even assume traits and characteristics that arise from these
interpretations (Meyer and Rowan, 1977; see also Røste, 2004).
Hence, the MONIT project builds on two perspectives, as formulated by
March and Olsen (1996):
• Policy making is “driven less by anticipation of its uncertain
consequences and preferences … than by a logic of appropriateness
reflected in a structure of rules and conceptions of identities”.
• Policy making implies “matching institutions, behaviours, and contexts
in ways that take time and have multiple, path-dependent equilibria,
thus … susceptible to timely interventions to affect the meander of
history and to deliberate efforts to improve institutional adaptability”.
The research discussed here focuses on the dynamics and inertia of
formal and informal institutions, and on social and cultural processes that
affect the creation and reinterpretation of these institutions.

INNOVATION POLICY SYSTEMS UNDER PRESSURE – 27
Chapter 3
Innovation Policy Systems under Pressure
This chapter explores some important challenges facing innovation

systems and their supporting policy systems. These vary depending on
each country’s recent history, economic specialisation and recent public
policy responses.
Introduction
As is evident from Figure 3.1, which depicts a standard model of a

national innovation system (NIS), influencing it is a complex endeavour and
requires attention to issues outside the realm of core science, technology and
innovation (STI) policy. Studies of innovation systems and innovation
policy have typically omitted an in-depth examination of the institutions that
formulate these policies. MONIT has attempted to make the policy system
as such endogenous to the understanding of innovation systems, with
governance as the focus.
Figure 3.1. A generic national innovation system
Demand Framework conditions

Consumers (final demand) Financial environment; taxation and incentives;
Producers (intermediate demand) propensity to innovations and entrepreneurship;
mobility, etc.
Company
system Education and Political system
Large research system
companies Intermediaries Government
Professional education
Research
and training
Mature SMEs institutes
Higher education and
Brokers Governance
research
Public sector research
New TBFs
STI policies
Infrastructure
Banking, IPR and
venture information
capital systems
Source: Arnold and Kuhlman (2001).

28 – NNOVATION POLICY SYSTEMS UNDER PRESSURE
National biases in innovation systems
Cross-country benchmarking of innovation indicators has proved useful

in many studies, helping governments to compare their countries’
performance to that of others. For example, the OECD’s Science,
Technology and Industry Scoreboard represents a comprehensive attempt to
provide comparable indicators of relevance to policy makers.
Figure 3.2. Biases in the Dutch innovation system
NL Mean
A1 INNO-EXP
F4 AAG MPOYM. IN MT&HT / GDP 3 A2 PATENTS
F3 AAG VA IN MT&HT / GDP A3 SMEs SHARE IN R&D
2
F2 LABOUR PROD. (HOUR WORKED) A4 EMPLOYM. IN MT/HT MANUF.
1
F1s % INNOV. FIRMS SER. A5 EMPLOYM. IN HT SERV.
0
F1m % INNOV. FIRMS MAN. -1 A6 INWARD FDI STOCK
-2
DX VENTURE CAPITAL BERD
-3
D3 KNOWLEDGE INVESTMENTS A7 DIRECT GOV. FUNDING OF BUS. R&D
D2 PARTCIPATION LLL B1 S&E GRAD. (20-29)
D1 TERTIARY EDUC. (25-64) PhDS/10.000 INH.
C4 SHARE OF CO-OP INNOVATORS B2 PUBLICATIONS/MILLION
C2 BUSINESS FINANCED R&D AT GOV. B3 BASIS RESEARCH

C1 BUSINESS FINANCED R&D AT HEI B4 SHARE RES. POL IN OVERALL BUDGET
The MONIT project attempts to provide a different set of indicators. For

each participating country, a comparable STI diagram was prepared to
illustrate its performance relative to that of others, in a way that would invite
critical scrutiny of explicit and implicit biases and preferences in the system.
In other words, the main purpose was to leverage national learning about
key priorities and help increase dialogue and learning. Annex B contains
these diagrams, Annex C gives a list of the indicators used, and Annex D
includes all available indicators, grouping in sections A-E the key elements
of a national innovation system, as illustrated in Figure 3.1, while section F
covers overall economic performance. For illustration, Figure 3.2 shows the

results for the Netherlands.2 The circle represents the average score of all
countries (normalised), while the line represents the subject country’s score
on given indicators.
Table 3.1 summarises the results. In brief, countries vary considerably,
with significant differences in economic structure and policy priorities.
Further, as data from the national studies show, these profiles tend to persist
over time. A striking feature is the apparent missing link between indicators
in A-E and the overall performance indicators in F. This suggests that
priorities and biases in the STI policy system are weakly linked to general
economic performance or policies.
Table 3.1. General assessment of STI performance profiles1
Country Assessment
Austria Strong: Employment in medium/high technology manufacturing, innovative firms in manufacturing
and services, value added in medium/high technology manufacturing
Weak: All others except government funding of business R&D
Profile: Innovative industrial system
Belgium Strong: SME share in R&D, employment in medium/high technology manufacturing and high
technology services, inward FDI, government funding of business R&D, business-funded R&D at
institutions of higher education, tertiary education, venture capital
Weak: Innovation expenditures, science and engineering graduates, PhDs, business-funded R&D at
government labs, participation in lifelong learning, share of innovative firms in manufacturing and
services, productivity, value added and high technology share
Profile: International linkage and private funding system, weak economic performance
Greece Strong: Science and engineering graduates, high share of medium/high technology in GDP
Weak: All others
Profile: Overall weak performance, strong in science and engineering education (some missing data)
Finland Strong: Most indicators, except overall economic performance
Weak: Inward FDI, share of innovative firms in manufacturing and services
Profile: Strong system with a paradox of a less innovative company system
Ireland Strong: Employment in medium/high technology manufacturing and services, inward FDI, science
and engineering graduates, share innovative firms in services and manufacturing, labour productivity
and value added
Weak: Patents, business expenditure on R&D, government funding of business R&D, publications,
basic research, share of R&D in overall budget, business-funded R&D at labs and institutions of
higher education, tertiary education, participation in lifelong learning, knowledge investments
Profile: Strong company system, good overall performance, weak knowledge system
Japan Strong: Patents, employment in medium/high technology manufacturing, business expenditure on
R&D, share of R&D in overall budget, tertiary education, participation in lifelong learning, knowledge
investments, venture capital
Weak: SME share in R&D, employment in services, inward FDI, direct government funding of R&D,
PhDs, publications, business R&D at institutions of higher education and labs, share of co-operative
innovators, value added in medium/high technology relative to GDP, employment in medium/high
technology relative to GDP
Profile: Strong industrial system and knowledge investments, weak on system performance
2. Rens Vandeberg and Pim den Hertog, Dialogic, Netherlands, provided MONIT with these
diagrams for most of the participating countries.

Table 3.1. General assessment of STI performance profiles1 (cont’d.)
Country Assessment
Korea Strong: High R&D/GDP, business expenditure on R&D, share of R&D in overall budget, tertiary
education, high rate of engineering majors, production technology
Weak: University and basic science, venture capital, SME share in R&D, inward FDI
Profile: Reformed NIS, strengthening regional innovation system, under-utilisation of engineering
graduates.
Netherlands Strong: Patents, employment in high-technology services, inward FDI, publication, business-financed
R&D in labs and institutions of higher education, venture capital
Weak: Employment in medium/high technology manufacturing, science and engineering graduates,
PhDs, basic research, share of research in overall budget, tertiary education, share of innovators with
co-operation, labour productivity
Profile: Big firms, strong private funding system for innovation
New Zealand Strong: Publications, basic research, business-funded R&D at labs, tertiary education, share of
innovative firms in manufacturing and services
Weak: Patents, business expenditure on R&D, direct government funding of business R&D, share of
R&D in overall budget, business-funded R&D at institutions of higher education, venture capital,
labour productivity, value added in medium/high technology relative to GDP
Profile: Innovative company system, variable inputs
Norway Strong: Share of SMEs in R&D, employment in medium/high technology services, direct government
funding of R&D, PhDs, publications, share of R&D in overall budget, share of co-operative
innovators, tertiary education, labour productivity (oil rent-based)
Weak: Innovation expenditures, patents, employment in medium/high technology manufacturing,
inward FDI, business expenditure on R&D, science and engineering graduates, basic research,
share of innovative firms in manufacturing and services, value added and employment in
medium/high technology relative to GDP
Profile: Overall good economic performance in weaker company system, service- and government-
oriented
Switzerland Strong: Innovation expenditures, patents, employment in medium/high technology manufacturing and
services, direct government funding of business R&D, tertiary education, participation in lifelong
learning
Weak: Basic research, business-funded R&D at institutions of higher education
Profile: Strong company system and government in knowledge investments (missing data)
Sweden Strong: Innovation expenditures, employment in medium/high technology manufacturing and
services, business expenditure on R&D, direct government funding of R&D, PhDs, publication, basic
research, business-funded R&D at institutions of higher education, share of co-operative innovators,
tertiary education, participation in lifelong learning, knowledge investments, venture capital
Weak: SME share in R&D, business-funded R&D in labs, share of innovative firms in services, labour
productivity, employment in medium/high technology relative to GDP
Profile: Overall strong inputs with weaker performance, strong knowledge system
1. Australia not included due to missing data.
Path dependency and development models
An underlying theme in these findings is that history counts. A common

problem for many governments is that they use yesterday’s institutions to
meet tomorrow’s problems. Typically, a country’s institutional set-up had its
“defining moment”, when economic expansion was coupled with long
periods of stability. In evolutionary terms, this creates ideal conditions for

path dependency, for example in terms of design of ministries and agencies,

cultural traits, competencies of civil servants and stakeholder participation
and influence.
One example may illustrate this general point. Like many other
countries, Sweden experienced solid economic expansion in the late 1800s.
At the time, many manufacturing firms were established that later became
the backbone of the Swedish industrial structure (Alfa Laval, ASEA, etc.).
The entrepreneurially based economy consolidated between the First and
Second World Wars and expanded again in the post-war boom period.
“Strong infrastructure investments by the government also led to
close relations, sometimes including joint long-term research and
development, between Swedish public utilities and manufacturing
firms. Such “development pairs” included the Swedish Power
Authority and ASEA, Swedish Rail and ASEA, and Swedish
Telecom and Ericsson. Indeed, such interaction between public
sector users and private industry accounts for a major share of the
impressive growth of large firms and private R&D spending in
Sweden. There was also a strong belief that only large firms had the
capacity to invest in R&D.” (Granat Thorslund et al., 2005).
Today, the “Swedish paradox” (high investments in R&D do not result
in greater economic growth and innovation) presents a major challenge. To
resolve it, it appears necessary to address traditions like the role of big
business, the concentration of R&D spending, and the efficacy of the
innovation system in terms of distributed growth of start-ups and SMEs.
In many countries, funding traditions and strongholds in the science or
university system create inertia which new agendas and priorities must
overcome. In the face of organisational or institutional inflexibility, it is
often more effective to create new structures than to try to adapt existing
organisations or structures. Well-managed older players join and partly
shape the new initiatives to avoid being abolished. The persistence and
ability of institutions to survive are well illustrated by the Dutch R&D
organisation TNO (see Box 3.1).
Austria has a strong tradition of framing science policy for universities
and giving generous basic funding; as a result, the university sector is
difficult to govern from outside (Jörg, 2005). Figure 3.3 shows the
persistence of funding regimes in selected countries. Many other countries
have experienced similar, or even stronger, lock-ins due to their own
“defining moments”. The strong expansion and economic success of Asian
countries like Japan and Korea in the post-war boom were based on specific
governance regimes and a strong reliance on the “linear model” (Hong,
2005; Ichikawa, 2005). Ireland has reached the point at which its recent
successful development model and its institutions (low cost, pool of young,
educated workers, hidden reserves of labour) are out of step with the needs
of the global, knowledge-based economy. The shift in focus from
employment to innovation requires the renewal of governance and
innovation systems (Hilliard and Green, 2005). Many countries’ recognition
that new times require new solutions is leading to significant changes.
Box 3.1. The adaptability of TNO
Why is TNO such a stable element in the Dutch innovation landscape?
• The Netherlands has a long-standing tradition of institutionalised non-university public

research. First aimed at firms without R&D capabilities, it has recently also aimed at
innovative firms that might benefit from additional R&D. Since the early 20th century,
government has been in favour of a publicly funded applied science research organisation.
• TNO was established by law as an independent organisation with a rather broad remit. This
not only gave it room to manoeuvre, but also protected it at times from sudden government
intervention.
• Owing to its size and broad goal, TNO has the institutional and financial flexibility to adapt
its operations, create new research activities and abolish outdated ones. In combination with
its well-developed ability to adapt – including the use of external criticism as a lever to
bring about changes internally (as in the case of its co-financing scheme) – TNO has also
worked actively to develop a more structured process of agenda-setting and to follow the
more recent trend towards accountability. At the same time, TNO was never subjected until
recently to an external evaluation; at most its position within the wider knowledge
infrastructure was questioned.
• TNO is acquainted with the world of science and innovation policy making, invests in
contacts with government and participates in numerous programmes, new network
activities, and large research programmes and has managed to enter into partnerships or co-
operate not only with universities, but also with potential new competitors in the (semi-)
public knowledge infrastructure.
• TNO’s relationship with government is quite complex. On the one hand, it is partly
dependent on government for its base and target funding. On the other, it performs some
public tasks and also sometimes helps government to streamline parts of the knowledge
infrastructure. In the last decade, TNO took over five small and larger knowledge institutes.
A further factor of complexity is that the TNO and government do not have a single clearly
defined relationship, but many, as government has not managed to develop a truly co-
ordinated TNO strategy. This explains why various governance regimes co-exist and why
the existence of TNO has never seriously been questioned.

Figure 3.3. Sources of higher education expenditure on R&D (HERD), 19931 and
1998
100%
80%
60%
40% Funds from abroad

Business enterprise
Private non-profit
20% Higher education
Direct government
General univ. funds
0%
1993
1998
1993
1998
1995
1998
1993
1998
1993
1998
1993
1998
Austria Finland Germany Switzerland UK USA
1. Germany: 1995; Switzerland: average 1992/94.

Source: OECD; Jörg (2005).
Tensions in policy systems
These deeply rooted characteristics are often linked to more evident rifts
and frictions. Further, a government can hardly be viewed as a single
(rational) actor, pursuing clear objectives with full information and clear and
consistent preferences. Rather, governments, and their policy systems, face
great uncertainty with less than optimal information and with in-built
contradictions and tensions. For a coherent innovation policy, this is an
important point of departure. Such tensions are illustrated in the case of
Norway (Remøe, 2005):
• There are deep tensions within the Ministry of Trade and Industry,
basically between the division for economic policy, whose foundation is
the neo-classical approach to economic policy, and the division for
R&D and innovation, whose perspective is more in line with the
innovation systems approach and evolutionary economics.

• There are tensions between the Ministry of Trade and Industry and the
Ministry of Local Government and Regional Development, in particular
in terms of state vs. regional perspectives.
• The Ministry of Science and Education takes an ownership role towards
R&D policy and somewhat resists co-ordination. This has led to a lack
of integration between R&D policy and innovation policy.
Empirical evidence from the MONIT project points to further important
tensions and contradictions that need to be addressed to achieve more
coherent innovation policy:
• Competing rationales: Individual policy domains, like R&D and
industrial policy, have their own communities with their specific
preferences, ideologies and educational backgrounds. As the status of
these domains may differ across countries, countries’ policy systems
will have different dominant rationales. Further, broader developments,
such as new public management (NPM) in economic theory and policy,
often increase the dominance of one rationale vis-à-vis others. For
example, the prevailing (neo-classical) economic policy thinking leads
to a dominance of measures to support individual firms even though the
NIS approach has long been on the agenda. This is evident in Norway
and the Netherlands; in the latter, the Ministry of Economic Affairs was
overhauled to better support the NIS policy approach. Ireland provides
an interesting illustration:
“While the Department of Enterprise, Trade and Employment is
committed to the implementation of the Lisbon strategy [the EU
template for developing a knowledge-based economy], the
Department of Finance is equally firmly committed to the goals of
the Stability and Growth Pact and the associated Broad Economic
Policy Guidelines (BEPG) in keeping tight control of public
finances and debt.” (Hilliard and Green, 2005)
• Short-termism in resource allocation: Budgetary practices in many
countries promote short-term thinking and in some cases undermine
strategic, long-term policy making. Investments in R&D and human
capital are typically treated as annual expenditures, even though they
represent investments with long-term payback times. In Norway, the
earlier tradition of long-term budget programming has been dropped,
and short-termism has become even more severe owing to the increasing
role played by the revised budget, which is presented every year in June.
Although this has led to some new practices, e.g. new types of funding
sources (see below), the budgetary mechanism may not support longer-

term resource allocations in the absence of mandatory policy, as in the

case of many welfare programmes.
• Strategic tensions in NPM regimes: New public management has been a
prevailing approach to policy for several decades and has in many cases
led to significant efficiency gains. However, priority for efficiency
typically neglects strategic needs, making long-term co-ordinated
political action more difficult. This is evident in New Zealand: from
1984 to the early 1990s, New Zealand’s public sector underwent
massive structural, organisational and management changes. At the
central government level these included (Williams, 2005):
− The corporatisation and subsequent privatisation of state trading
activities.
− The introduction of a new financial management regime.
− Major changes to the machinery of government.
− A new system of appointing and remunerating senior public
servants.
− Substantial cuts in various government programmes.
− Significant changes to public sector industrial relations practices.
− A growing emphasis on biculturalism and employment equity.
− A much greater concern with accountability and performance
assessment.
Different views and understanding of innovation policy: Different
ministries typically have different rationales and often diverging
views of innovation policy, its definition and its role. This is well
illustrated in Austria, where transport and innovation have been
brought under the same ministerial leadership. However, this
organisational proximity does not eliminate problems such as: lack
of stable core competencies, which leads to insecurity when dealing
with others on related topics; threat of loss of responsibilities by the
divisions; scepticism, often based on misunderstanding, of what the
other one does; different time scales, disciplines and approaches to
change.
The differences in perceptions between the two divisions are
evident:
“The Transport Division tends towards the view that the
Innovation Division is responsible for innovation in the transport
sector and that this does not concern broader transport policy
issues. They see the boundaries between transport policy and
transport technologies as clearly demarcated and separated from
each other. The Innovation Division does not limit its own remit
merely to the development of transport technologies and
interprets its agenda as also encompassing organisational aspects
related to the implementation of new technologies.” (Whitelegg,
2005)
• Different imperatives for different policy areas: Innovation policy is
typically placed in an economic growth perspective. There are no
system limitations to the innovation-driven economy as defined in the
NIS approach or in innovation policy as such. This is a serious challenge
when innovation policy is supposed to be merged, co-ordinated or
integrated with policies such as environmental policy. The latter, in its
modern version of policies for sustainable development, contains
imperatives linked to system limitations, e.g. the carrying capacity of the
Earth’s ecosystem. Such differences are also mirrored in the instruments
typically employed in the respective policy areas. While innovation
policy includes a great variety of incentives and regulations for growth
and dynamism, instruments for sustainable development are typically
regulations that place limitations on human or economic behaviour.
Such differences increase tensions among policy areas.
• Division of labour between policy areas: A coherent innovation policy
may imply the take-up of innovation policy goals by other policy areas.
This is often referred to as a multi-goal policy. While this can be widely
beneficial, policy makers may rightly argue that a given policy area will
lose its effectiveness. This is discussed in the case of Norway’s tax
credits for R&D investments (SkatteFUNN) (Kaloudis, 2004), where it
has been argued that the tax system should not be allowed to have such
functions, as the tax system itself becomes “hollowed out”. Implicitly,
this is a case of tensions between direct and indirect measures in
countries that introduce tax credit systems.
• Fragmentation and segmentation: A general trend, in particular in the
context of NPM in many countries, is increasing fragmentation as well
as segmentation at a time when policy responses require more co-
ordinated action. NPM-based regimes typically lead to a flourishing of
agencies, decentralisation and devolution. Changes often occur through
additions to policies and institutions rather than major overhauls of the
system, and hence add to the complexity and fragmentation already in
place. Korea has a complicated set of laws and regulations for science,
technology and innovation. This may reflect the government’s active
role and leadership, but, at the same time, it may indicate duplication
and authoritative intervention.
• Competition and personal ambitions: Tensions and contradictions in
policy systems arise not only from structural factors, they also stem
from policy makers’ ambition and competition for status and scarce
resources, leading to rivalry, turf wars and loss of coherence.
• Significant changes in policy paradigms: Success may also lead to
inertia and stagnation. Korea and Japan are examples of countries that
were very successful in the 1960s, 1970s and part of the 1980s, relying
heavily on the “linear model” of innovation to promote technology and
economic growth. For example, the Korean system “was relatively
successful in mobilising resources in the past. Recently the system has
been severely criticised as inefficient for the new era of the knowledge-
based economy, where innovation is the most important factor” (Hong,
2005). However, changes do occur, with significant implications for
policy priorities. In Finland, major changes took place during the crisis
of the early 1990s, but built upon institutions and practices already
present. The consensus-based, co-operative pattern of decision making
in the Finnish system led to a new strategic approach for technology and
innovation policy, based on premises different from those of the former
welfare state (Hayrinen-Alestalo and Pelknonen, 2005).
• External pressures: Governments and innovation systems may be
exposed to external pressures and priorities, resulting in governance
practices and competencies that are not in tune with these pressures.
Greece has for example experienced significant external pressure and
influence from the EU and its framework programme for R&D and
regional policies (Tsipouri and Papadakou, 2005).
Such tensions are abundant, and may contribute to loss of efficacy and
relevance of policies and institutions. This becomes even more an issue as
various policy areas must be aligned and adjusted to formulate strategic
approaches, and as governments need to learn more about how policies
interact to create effective environments for innovators.
Interactions in policy systems
The firm as a nexus of policy influence

The innovating firm is the primary focus of innovation policy. Policy
support for individual firms is still a key component of innovation policy in
OECD countries. However, the innovative behaviour of firms, their
industries or clusters, depends to a great extent on the impact of a multitude
of policy areas. Indeed, the firm may be seen as the nexus of more or less
well co-ordinated policies that interact at firm level to create a system of
incentives and disincentives.
This situation prevails in all countries, and full coherence is scarcely
possible. However, governments may greatly improve the efficacy of the
policy system through better understanding of the interaction of various
policy areas. The Norwegian fish farming industry illustrates how various
policies influence and implicitly create an innovation policy context for
firms in that industry (Figure 3.4). Over time, the four ministries involved
took widely different, un-co-ordinated positions on this growing industry.
Each ministry also represented a sector-specific knowledge infrastructure.
Throughout various stages, innovation and dynamism were hindered by
seriously flawed policy intervention and poor policy learning.
Governments need to be more attuned to the clustering of policies and
the need to carefully assess how various policy areas influence, directly or
indirectly, the development and dynamism of a sector or cluster. The fish
farming example confirms the importance of more effective governance and
policy co-ordination if innovation policy is to gain a broader role and be
better integrated in complementary policy areas.
Systemic imbalances and policy imperatives

Tensions and interactions in policy systems may be more substantive in
nature. Although an innovation policy promoting economic growth is
assumed to increase general welfare in a society, it may include or lead to
distributional effects that run contrary to a country’s traditional value
system. For example, innovation policy may stimulate growth in certain
industries, e.g. to develop a knowledge-based economy, but at the same time
leave or reinforce significant structural problems involving high levels of
unemployment (Hayrinen-Alestalo and Pelkonen, 2005). Partial
disequilibria like the “new economy” boom in the late 1990s left significant
distributional problems when it ended. Imbalances in financial markets may
be an indicator of deeper social and structural imbalances.

Figure 3.4. Fish farming as the nexus of sectoral policies
Aquaculture Aquaculture
is fishing! is farming!
FID LD
What is this new

phenomenon
”aquaculture”?
Farming
of fish in
the sea
Who is to take
administrative
responsibility?
Aquaculture should Aquaculture is an
NHD be process industry! environmental hazard! MD
HD: Ministry of Fisheries.

LD: Ministry of Agriculture.
NHD: Ministry of Trade and Industry.
MD: Ministry of Environmental Affairs.
Source: Ørstavik (2004).
Such tensions become more evident when assessing a growth-oriented

innovation policy in light of environmental concerns. At the outset, these
two concerns may seem to oppose each other, and actors in each policy area
may indeed have opposing perspectives. Yet, growth may be decoupled
from environmental degradation and even include a supportive function for
sustainable development:
“The de-coupling of non-sustainable patterns of social change in this
context necessarily implies a search for re-coupling for sustainable
development. Environmental protective measures must be promoted
in a way that triggers modified and even new value added-activities
and economic growth patterns. This can be achieved through
incremental changes in existing patterns of consumption and

production, but can also involve a need for more radical
discontinuous change. Moving from a de-coupling orientation
towards re-coupling for sustainable development requires highly
creative architectural innovations in both technical and non-
technical governance systems.” (Lafferty et al., 2005)
Such concerns bring out the issue of policy hierarchies: To what extent
should one policy take preference over another? If the carrying capacity of
the Earth is of existential importance, should not environmental standards
take priority over economic growth? Or if the general quality of life and
welfare of a society is of greatest importance, should not innovation be
subsumed under such wider concerns?
Perceiving challenges
The challenges perceived by policy makers in the participating countries

vary considerably. This is due in part to the different challenges they face.
Differences in the policy-making community’s awareness of these
challenges may also be important. In many countries there is increasing
awareness of the need to address the apparent lack of effectiveness and
adaptability of policy systems owing to changes in economic conditions and
innovation processes over the past years. For example:
• The Netherlands conducted some high-level policy analyses during
2001-02, which highlighted a number of challenges for the Dutch
economy and innovation system and created a legitimate basis for a
broad revision of its policy approach. One, entitled “Pillars under the
Knowledge Economy”, points to the importance of the capability to
adapt, institutional reform and well-functioning markets (Boekholt and
den Hertog, 2005).
• In New Zealand, a major effort to address policy challenges was
initiated after the change in government in 1999 and explicitly addressed
the need to rethink the role of government in phasing out a strict NPM
regime (Williams, 2005).
• In Sweden, a White Paper on research policy, Research and Renewal
(2000), includes new perspectives on a more comprehensive innovation
policy.
• In Norway, the government recently initiated a process to help define a
comprehensive innovation policy which so far has helped to raise
awareness (Remøe, 2005).

Despite major differences in topics addressed by governments and other

stakeholders, the MONIT material draws attention to some important
common challenges:
• Sluggish growth and regional imbalances.
• Future revenue gaps, creating an intergenerational challenge for
economic policy.
• Lack of consensus concerning innovation policy and its role in the wider
policy portfolio.
• Segmented or fragmented governance structures, leading to a lack of
integration or co-ordination, for example between innovation and
industrial policy.
• Generation of innovation from the science base, implying a better
system for commercialisation of knowledge.
• The linking of final and intermediate demand to innovation policy and
challenging innovation policy as basically supply-oriented.
• Renewal of innovation systems and economies through business start-
ups.
• Human resources, giving the education system a prominent role in
innovation policy.
• Simplifying the legal framework and other framework conditions.
• Internationalisation of R&D and innovation.
• The appropriateness of the innovation infrastructure.
Summing up, countries like the Netherlands invest substantially in
comprehensive analysis in order to give legitimacy to public action that is
subsequently to be implemented. In general, there is ample evidence that the
link between perceived challenges and comprehensive policy responses
needs to be based on consensus and appropriate understanding of the
respective countries’ long-term challenges. Chapter 4 explores this issue in
more detail.
Emerging issues
The material discussed in this chapter illustrates the core idea of the
MONIT project. Policy priorities are often deeply rooted in political-
economic systems and often go unchallenged. This may lead to policy lock-

in situations with biases in priorities and allocations that may cause

governments to forego options for structural accommodation.
Policy making is dominated by heavily institutionalised processes, often
influenced by more or less deep rifts and tensions between and even within
government agencies and units. Further, while there is a tradition of relying
on a model of “single goal policies” under efficiency norms, this tradition
may be inappropriate when there is a need to define and launch policy
agendas that cut across ministries’ missions and perceived mandates. Hence,
the traditional bureaucratic set-up based on specialisation and efficiency
norms can result in inertia and inflexibility when cross-cutting or horizontal
issues require a different model.
This situation will require governments to reflect on and redefine
mission statements, competence, knowledge bases, and the very raison
d’etre of policy making. On a more practical level, governments need to be
able: i) to detect and formulate consistent policy agendas for innovation-
driven development; and ii) to set in motion processes and structures that
ensure the implementation of these agendas. Chapter 4 will explore a
number of problems and options governments typically face in this area.

PRACTICES IN GOVERNANCE: TRENDS AND ISSUES – 43
Chapter 4
Practices in Governance: Trends and Issues
This chapter explores the emerging trends and issues in innovation

policy governance in member countries. For simplicity, it uses the basic
policy cycle discussed in Chapter 2. Given the exploratory nature of the
MONIT project, this chapter aims to illustrate and substantiate a number
of concerns and issues of importance. There are few ready-made
solutions that can be applied across member countries, although lessons
from current and emerging practices should help all OECD countries to
address these issues.
A point of departure
While most countries find their policy making and institutional set-up
increasingly ill-adapted to the challenges of the innovation-driven, dynamic
economy of the early 2000s, they typically respond within national
development paths or on the basis of national perceptions of conceivable
adjustment paths.
Governance structures and mechanisms vary considerably, and the
formal structures of governmental organisations and institutions do not
allow the necessary insight into governance practices. Rather, a dynamic
model is needed, which builds upon the analytical framework presented
above. Figure 4.1 presents such a model, which highlights the importance of
processes, influence and linkages in policy making.
Setting agendas and ensuring priorities: strategic innovation policy

making
Many governments have initiated new forms of policy making with a

view to overcoming the many inherent tensions and shortcomings of their
systems. This section discusses some important mechanisms for strategic
innovation policy making.

44 – PRACTICES IN GOVERNANCE: TRENDS AND ISSUES
Figure 4.1. A dynamic model of policy making
Constituency Policy makers
Promises
Industry, Politicians
institutes,
research groups etc.
Lobbying Ministry
staff
Proposals
Proposals
Funding
Funding
Operational level Policy analysts
Agencies, etc. Policy research,

consultants,
OECD,
etc.
Source: Based on Lennart Elg, Sweden.
Creating strategic frameworks

In member countries, the institutional set-up of governmental bodies has
often become fragmented and difficult to govern. Further, these bodies have
to deal with increasing globalisation and generate a new basis for economic
growth in light of significant innovative pressures as well as the
delocalisation of manufacturing and services. Over the past decade,
countries like New Zealand and Norway have increasingly relied on
market-based, liberal models of economic policy and taken a rather strong
“hands-off” stance towards what is typically termed industrial policy.
Increasingly, innovation policy is taking up some of the role of traditional
industrial policy as an approach to enhancing economic growth and ensuring
structural adaptation.
For example, in June 2000 the New Zealand government established an
advisory council to look into a wide range of issues on how best to develop
the talent base for the economy, attract appropriate foreign direct
investment, develop the innovation system, build a more inclusive economy,
ensure that social development is appropriately incorporated and measured
and take a sustainable development approach to policy development and
implementation.

This and other initiatives were encapsulated in a framework called the

“Growth and Innovation Framework” (GIF) (see Box 4.1). The framework’s
main function is to create a vision and a focus for a broad approach to
economic growth, and it gives innovation policy a central place. Hence, the
framework is useful for encouraging the debate and dialogue necessary for a
horizontal, coherent and long-term commitment (Williams, 2005).
Box 4.1. The Growth and Innovation Framework in New Zealand

GIF has two key aspects:
• Strengthening existing foundations in macroeconomic settings, social
cohesiveness, health, education and innovation.
• Focusing on the four main challenges to build effective innovation.
The four main challenges are:
• Enhancing the existing innovation system.
• Developing, attracting and retaining people with exceptional skills and talents
who are able to innovate and so contribute to increasing overall productivity.
• Increasing the nation’s global connectedness.
• Targeting innovation areas that can impact across the economy. Currently these
are:
− Biotechnology.
− Information and communication technology.
− Design.
− Screen production.
Norway’s strategic plan for a coherent innovation policy was initiated in

2003 as a broad action plan for innovation. The context was the future
discrepancy between public expenses for pensions and the revenues from the
petroleum sector. This was often referred to as the “shark’s jaw”, implying
significant problems ahead with the likely phase-out of the petroleum
industry and a concern that the industrial structure will prove incapable of
generating the growth necessary to compensate (Remøe, 2005).
The Norwegian plan generated an agenda for innovation and growth, but
failed to achieve a comprehensive strategy for implementation. An
interesting problem was the apparent mismatch between the implied
innovation policy strategy and the dominant macroeconomic rationale in key

areas of the public administration. Hence, the plan has met resistance and
represents to some extent a clash of paradigms in Norwegian policy making.
Such frameworks, however, have a significant role to play in policy, as
key policy areas may be redefined to fit the strategic direction of a nation’s
economy. The lessons to be learned from such framework policies may be
that:
• The framework should be guided by broad, but precise, visions for
industrial development.
• It should integrate innovation as a driver in economic growth.
• It should address linkages and division of labour between ministries.
• It should provide directions for developing and implementing policy.
• It should address conflicting relations between key policy areas.
Strategic policy making through councils

The typical institutional set-up in OECD countries has been a ministerial
structure with a relatively high degree of division of labour. This has often
led to differentiated trajectories and rationales. Moreover, these structures
are increasingly ill-suited to meeting the need for comprehensive policy-
making approaches for innovation-based growth and development. In
particular, governments often need to remedy structural deficits by creating
new institutions to mediate between different government positions and
priorities. Many countries have been setting up science and technology
policy councils to deliver authoritative, negotiated policy recommendations.
The prime example is Finland’s Science and Technology Policy Council
which has created a legitimate basis for the priorities set by the Finnish
government. But it also illustrates that a such a body does not necessarily
lead to a comprehensive, horizontal innovation policy. Some important
features of the Finnish council illustrate its role in the governance system
(Hayrinen-Alestalo and Pelkonen, 2005; Pelkonen, 2005):
• There is a strong commitment to the concept of the national innovation
system, giving core technology and innovation policy a key role.
• Science and technology policy is not broadly debated in Parliament.
• The Ministry of Trade and Industry does not play a central role in
technology policy.
• The Ministry of Education has a strong role in science policy.

• A top-down but consensus-based approach gives significant leverage to

the corporatist system and key stakeholders.
• Informal processes among a small number of well-placed actors have
become important.
The Finnish Science and Technology Policy Council has been very
influential in directing the process of priority setting. It has a comprehensive
membership, with key ministers, representatives from other institutions and
agencies, as well as stakeholders. Institutions like TEKES and the Academy
of Finland have important roles. The council’s main function has been to
encourage key policy makers to commit themselves to innovation policy and
help direct resources to targeted priority areas. The strong consensus
orientation and small circle have ensured priority for agendas that have been
perceived as important, notably innovation related to the information
society. The council has not been able to develop more comprehensive
economic development strategies that integrate many ministries. This is
related to current developments in Finland, as its hitherto successful policy-
making system is approaching a point where changes are needed. A
horizontal, comprehensive approach may well lead to a redefinition of the
council’s role in decision making.
The Netherlands, with its Innovation Platform, and Austria have seen
similar developments, in which the integration of stakeholders in agenda
setting and priority setting represent a vital mediating role in an otherwise
fragmented system. This is different from the Norwegian Innovation
Committee, which has membership from six key ministries but less
stakeholder involvement, although there is significant stakeholder
involvement in the implementation process and project selection.
Thus, policy councils may be a powerful tool for creating a mediated
and negotiated outcome in the priority-setting process, but may have
weaknesses in terms of the ability to develop comprehensive, horizontal
policies for innovation and sustainable growth.
Consultation and stakeholders

Among the merging patterns of governance is a growing tendency to
relate to stakeholders more generally. In countries like Norway and Austria,
the traditional corporatist set-up has played an important role in co-
ordinating the state, employers and employees. However, this is typically
weaker in the context of a more market-oriented system and new public
management (NPM) practices. In innovation policy, as in other areas, this is
often replaced by a “committee corporatism” of limited duration and
mandate. However, as the following examples illustrate, practices vary.

The implementation of New Zealand’s Growth and Innovation

Framework (GIF) required widespread stakeholder involvement and
commitment across the public and private sectors. To focus resources
strategically in important sectors, the government established in May 2002
four private-sector taskforces to develop sector-specific strategies in
biotechnology, information and communication technology (ICT), screen
production and design. These sectors were chosen for their high growth
potential and because they have horizontal impacts across the economy. The
rationale for focusing resources was to create critical mass, scale (in order to
compete globally) and specialisation.
A trend that seems closely linked to NPM is the increased use of
external bodies and committees that play a role in formulating and
implementing policies. This trend is visible in the Netherlands and Norway
and constitutes in the latter a transformed “committee corporatism”.
External help is used to improve co-ordination and coherence, e.g. through
frequent use of external committees and separate action programmes in
which outsiders have increasingly a steering role.
One key task for good governance is to ensure effective prioritisation
and agenda setting for innovation policy. This function may suffer in the
absence of an explicit body for long-term strategic policy making such as a
science and technology policy council or framework policies. An important
finding from the MONIT project is that agenda setting and prioritisation are
often weakly linked to strategic intelligence. In other words, strategic
intelligence (like foresight) is given too little attention, either because such a
function to improve policy learning is not available, or because its outcomes
for policy making are neglected.
Stakeholder involvement in innovation policy should give greater
weight to distinct governance issues. The experience of New Zealand and
Finland suggests that more traditional stakeholder involvement, including of
corporatist systems, should be expanded to develop participatory
governance systems in which expert and lay groups have a say in innovation
policy agendas and formulation. Table 4.1 summarises the positive and
negative aspects of stakeholder involvement in the Netherlands.

Table 4.1. Positive and negative aspects of stakeholder involvement in the Netherlands
Positive aspects Negative aspects

• Increases the user orientation of policies and • Lengthens the decision-making process
consequently their effectiveness • Increases the transaction costs of policy making
• Invites more transparency on the rules of the • Composition of stakeholder groups can be
game skewed in favour of certain interest groups or
• De-politicises some contested decisions positions
• Circumvents departmental turf fights
• Facilitates networking between different
stakeholder groups
Source: Boekholt and den Hertog (2004).
Transforming agendas into implementation
Dealing with complexity

The institutional set-up is extremely complex in many countries, and
governments will often need to adjust and simplify it in order to develop
governable systems with acceptable co-ordination costs. Studies in the
MONIT project show that governments are increasingly concerned about
fragmentation, complexity and governability. As mentioned above, they
increasingly respond by creating structures such as Science and Technology
Policy Councils (Finland, Austria, Japan, Korea, the Netherlands) or
strategic frameworks (New Zealand, Norway) to help achieve co-ordination
and coherence.
Korea, for example, is in the process of reducing the complexity of the
institutional environment and changing the governance system from the
linear model to a more comprehensive approach. A complicated set of laws
and regulations for science, technology and innovation (Figure 4.2) reflect
the government’s active role and leadership, but, at the same time,
duplication and intervention. Indeed, the government sees excessive
regulations and duplication of R&D programmes as problematic. Hence, the
Korean government has developed plans to deal with this complexity (Hong,
2005):
• It recently strengthened the role and authority of the National Science
and Technology Council.
• It has improved the system for planning, management, evaluation and
diffusion of the outcomes of R&D projects.

• It will support government research institutes in order to improve their

basic abilities, educate excellent research manpower and perform mid-
and long-term projects that produce world-class research results.
Figure 4.2. The Korean STI system
S&T Framework Law
Technology Development Support Promotion of R&D Institutes
Technology Development Promotion Law (’72)

Engineering Technology Promotion Law (’73)
Biotechnology Promotion Law (’83) Government-supported Research Institutes Law (’73)
Basic Scientific Research Law (’89) Korea Atomic Energy Research Institute Act (’73)
Collaborative R&D Promotion (’94) Korea Science and Engineering Foundation Law (’76)
Dual-Use Technology Promotion Law Industrial Research Associations Promotion Law (’86)
Brain Science Research Promotion Law (’98) Act on Korea Institute of Nuclear Safety (’89)
Nanotechnology Development Promotion Act
(’02)
Radiation & Radioisotope Promotion Act (’02)
Nuclear energy Manpower education Others
Atomic Energy Act (’58) Korean Advanced Institute of Meteorological Service Act (’61)
Nuclear Liability Act (’69) S&T Law (’80) Standard Time Act (’86)
Act on Governmental Contract Professional Engineers Law Science Museum Act (’91)
for Indemnification of Nuclear (’92) Presidential Advisory Council on
Damage (’75) Gwangiu Institute of S&T Law S&T Law (’91)
Law for Physical Protection of (’93) Daedeok Science Town
Nuclear Facilities (’03) Female Scientists and Management Law (’93)
Engineers Act (’02)
Scientists and Engineers
Mutual Aid Association Act
(’02)
Note: Figures in parentheses are the years the listed law were enacted.
Source: Korean Ministry of Science and Technology.

Ireland also demonstrates the need to deal with built-up complexity to

meet the demands of new development models. In recent years, significant
efforts have been made to bring innovation to the forefront of priorities, and
contributions such as White Papers and inputs from stakeholders have
pointed to the problems of a complex set-up and lack of coherence in
policies and programmes. This is also related to country size:
“To some extent, the problem lies in the very complexity of the
institutions and arrangements that comprise the governance system,
which have their own historical origins and rationale, but at the
same time reflect an insupportable policy overload for a small
country, with associated gaps and duplications at the point of
delivery.” (Hilliard and Green, 2005)
The Irish government’s commitment to innovation policy was laid down
in the National Development Plan 2000-2006. Implementation of this plan is
seen as dependent on a clear and strategic framework in which complexity is
reduced and policy delivery enhanced. Such a framework was proposed, and
after intense deliberations showing that the issue was highly contested, the
following key pillars of the framework emerged in 2004:
• The appointment of a Chief Scientific Advisor.
• The introduction of a Cabinet Committee on STI to co-ordinate a
“whole-of-government” approach to setting and delivering on STI
priorities.
• Initial work on a knowledge society foresight exercise (Hilliard and
Green, 2005).
Institutional renewal to ensure implementation

Traditional governmental structures may not be able to solve the
inherent priority problems, and new governance structures will be needed to
ensure integration and consistent agendas. The Flemish government has
recently established a mediating institution to enhance integration between
environmental and innovation policy, the Innovation Platform for
Environmental Technologies (Dries et al., 2005). As depicted in Figure 4.3,
the aim is to activate innovation synergies among all relevant private and
public actors and elaborate an action plan which defines key objectives and
pinpoints synergies for the actors involved in implementing the platform.
The implied networking arrangement will provide a useful arena for
mediation and negotiation in achieving horizontal coherence.
The Dutch study of the information society (IS) argues that agenda
setting plays a key role in horizontalisation, with the IS/ICT (information

and communication technology) policy agenda broadening from a science

and technology agenda into one encompassing social and governmental
changes. However, the organisation of horizontalisation is a slow process. In
agenda setting, policy formulation and evaluation of individual departments,
rather than integrated programmes, tend to dominate. This is illustrated, for
example, by the relatively modest budget for interdepartmental programmes
as compared to the overall IS/ICT budget (den Hertog and de Groot, 2005).
In many countries, traditional practices for implementing new policies
are relatively rigid. As they seek to become more flexible to adapt to new
needs, they often adopt new institutional solutions. In Norway, for example,
to increase investment in R&D and reach the OECD average, a new fund for
research and innovation was established, and earnings may be used to fund
new initiatives. This made it possible to launch a long-term commitment for
R&D investment that would have been impossible within the logic of the
annual state budget (Remøe, 2005). Similar developments are taking place
in Austria (Jörg, 2005) and Ireland (Hilliard and Green, 2005).
Figure 4.3. The Flemish innovation platform
Innovation policy Environmental policy Energy policy

Advisory Group
Other policies
Steering committee
Federal level
Action plan
European Union
Demand driven policies Supply driven policies
Working Group 1: Existing innovation

User Pole of excellence VITO (+
public procurement support schemes:
Group 1 universities, technical high schools)
R&D companies
SME programme Bringing existing New
WG 2: regulations Strategic basic User technology to the knowledge
favouring innovation research, Technical Group 2 commercial stage development
high schools
Knowledge diffusion, Prodem,
Cluster support … + User
WG 3: new financial BAT/EMIS
Ecoscan Group x
instruments
VITO = Flemish Institute for Technological Research.

BAT/EMIS= Best available technology/Energy and Environmental Information System for the Flemish Region.
Source: Dries et al. (2005).
Because of organisational or institutional inflexibility, it is easier to

create new governance structures than to try to adapt existing ones. The shift
from institutional to more network and programmatic types of initiatives
leads to more complex governance structures, as these help to weave an
increasingly complex web of new and old players in the innovation system.
Well-managed older players make sure to join and even shape in part the
new initiatives so as to avoid being abolished.
Decentralisation and accountability: the increasing role of

agencies
Throughout the 1990s, governance practices changed in many OECD
countries. NPM was introduced in various ways and degrees and led to
decentralisation and governance by objectives and incentives, including in
governance practices influencing innovation policy. MONIT has
demonstrated that this has helped increase accountability, but at the same
time has often led to increased fragmentation.
The division of labour between upper and lower levels of government is
changing, leaving the upper levels (ministries) responsible for policy and the
lower levels charged with co-ordinating a number of instruments often
financed by separate ministries. In some cases this is linked to the need to
reduce complexity and redirect the roles of institutions. The general process
may be termed agencification, a process most evident in Japan where the
Ministry of Economy, Technology and Industry has launched a process in
which the ministry’s policy making has become more separate from
implementation because implementation agencies are more independent
(Ichikawa, 2005). One of the main results was to give implementation
agencies like the New Energy and Industrial Technology Development
Organisation more operational freedom to ensure that managing and
implementing R&D policies can be more independent from the fiscal
constraints of the annual budget (Shiozawa, 2004). This reform also sought
to improve vertical coherence though regional cluster policies.
In the countries covered by the MONIT project, the pattern varies. One
clear trend is towards regionalisation of innovation policy, as in the
Norwegian plan for holistic innovation policy. This is supported by more
agency freedom and a clearer interface between policy formulation and
implementation (Jörg, 2005). The Research Council of Norway, instead, is
micromanaged, with significant earmarking by ministries, even though a
unified council has been formed (Remøe, 2005). In Finland, TEKES takes
on co-ordination tasks by promoting horizontal policies in its programmes
but has no mandate to do so (Hayrinen-Alestalo and Pelkonen, 2005).

A critical question that arises is: To what extent are the agencies
designed to promote co-ordination and increase coherence in the system?
Results from various MONIT studies indicate that policy makers should
refrain from micromanagement and give the agency level more
independence and thus a more strategic role. This is important since the
pervasive trend towards greater use of NPM in recent years tends to increase
the need for compensating practices to ensure coherence (see Box 4.2).
Box 4.2. New public management may reduce strategic orientation in

policy systems
NPM and decentralisation may reduce the strategic orientation of policy and
reinforce short-termism. On the one hand, it may be more difficult to involve
stakeholders in long-term strategic decision making, and on the other, policy may be
dominated by concerns of the ministry of finance and short-term or annual budgeting
practices. This leads to some further points:
• Some countries have established strategic bodies like science and

technology policy councils to help overcome fragmentation and short-
termism.
• Long-term orientation/goals are not effective without visible or specific

commitment by government.
• The process of agencification is often coupled with regionalisation of

governance structures to involve regional institutions and authorities more
closely in innovation policy making.
• The pervasive trend towards NPM leads to a concentration of co-

ordination in the implementation phase, in some cases resulting in
institutional overload at the agency level.
• A referee function is often lacking in decentralised systems, leading to

conflicts and overlaps between institutions and instruments.
Policy integration and linkages

When applying the NIS approach in innovation policy, governments
face the challenge to combine efforts for knowledge creation, diffusion and
use in many domains, basically with economic growth in mind. Co-
ordination and integration of policy objectives and instruments takes place
within the context of a joint imperative, and policy components in each
domain may build upon and reinforce each other.

There is a great potential for linking innovation policy with other policy
areas. However, even in such cases, many ministries and departments
engage in the process based on their traditions, perception of their own area
and competence, as well as perceptions of other policy areas. Typical issues
that arise are:
• Lack of understanding of innovation policy in other policy domains
undermines communication in the co-ordination process (see next
section).
• Strong traditions, in particular in the science policy domain, create
segmented “belief systems”.
• Different “schools of thought”, e.g. between neo-classical economics
and innovation research, may block integration of innovation and
economic policy.
• Dynamic coupling of problems, policy proposals and politics often takes
place in the context of specific windows of opportunity.
• Specific sectoral policies may be framed in ways that define others as
rivals.
• Strong political leadership is necessary to create a common vision and a
legitimate basis for joint agendas.
Integrated policy agendas are more difficult in the case of opposing
imperatives. Such a conflict of interests is evident for linkages of innovation
policy with sustainable development (Hjelt et al., 2005), transport policy
(Whitelegg, 2005) and health-care policy (Hayrinen-Alestalo and Pelkonen,
2005). In addition to the above-mentioned issues, others arise as well, as
indicated in the sustainability summary in Annex E):
• Stakeholders differ. S&T policy focuses on economic competitiveness,
and the most relevant stakeholders are the business and research
communities. Very little effort has been made to engage stakeholders
representing technology users in the policy process. For its part,
sustainable development policy has from the beginning had very broad
stakeholder involvement from different interest groups.
• Drivers of policy formulation differ. Sustainable development and
environmental policy are traditionally driven by international
agreements and global problems, whereas innovation policy in most
countries is very much driven by national concerns. S&T policies
traditionally aim at increasing national competitiveness and wealth,
whereas sustainable development policy is concerned with improving
international governance for tackling global problems. It follows that
S&T policy needs to be more alert to international developments and

that sustainable development policies have to tackle national challenges.
policies mainly use regulative and fiscal measures, often based on
international agreements, with strict targets and rules regarding actions.
In addition, they adopt measures such as standards, voluntary
agreements and information sharing. In contrast, the main innovation
policy measure is resource allocation for R&D, and regulatory and fiscal
control of money. Typically, sustainable development and
environmental policies have very few resources, whereas S&T policies
are based on the state budget for R&D allocations. This difference may
hamper efforts to design joint actions that would require some
reallocation of resources (Hjelt et al., 2005).
In the area of environmental protection, opposing imperatives are not
simply technical, as the environment takes precedence over economic
growth. However, to release the win-win potential in this relationship it is
necessary to decouple the link between policies for economic growth and
environmental pressures and create different linkages for green innovation
(innovation that promotes economic growth while improving or being
neutral to the Earth’s carrying capacity) (see Box 4.3).
The win-win potential is better exploited if environmental policy is
transformed into sustainable development policy, including social and
economic development. This will also create more space for adjoining
imperatives and ensure that policies for innovation and growth as well as
sustainable development reinforce each other.
Studies in Norway address the issue of policy integration from the
viewpoint of environmental policy, but with relevance for the present
discussion (Collier, 1997; Lafferty et al., 2005). According to a three-point
definition, environmental policy integration should aim to:
• Achieve sustainable development and prevent environmental damage.
• Remove contradictions between as well as within policies.
• Realise mutual benefits and achieve the goal of mutually supportive
policies.

Box. 4.3. Linkages between innovation and environmental policy

There are several good reasons why a more explicitly innovation-oriented environmental
policy is needed:
• Environmental effectiveness: An innovation-oriented environmental policy is necessary to
promote the development and introduction of a new series of techniques that make major
improvements in environmental quality more attainable.
• Decoupling economic growth from environmental pressure: An innovation-oriented
environmental policy is necessary to achieve simultaneously ambitious socio-economic
and environmental objectives and substantially raise the eco-efficiency of the economy.
• Cost-effectiveness: An innovation-oriented environmental policy is necessary to reduce
the cost of environmental measures and achieve more environmental results for the same
level of costs.
• Take advantage of win-win opportunities: An innovation-oriented environmental policy
is necessary to focus on win-win opportunities that have remained unused in order to
lower production costs and at the same time pollute less.
• Market and socio-economic benefits: An innovation-oriented environmental policy is
necessary to benefit from the promising market and socio-economic benefits of the fast-
growing environmental industry.
At least three main reasons for a more explicitly environmentally oriented innovation
policy can be mentioned:
• Innovation policy promotes R&D on promising future technologies. Given the scale and
magnitude of environmental problems, technologies limiting the environmental damage
of production and consumption are important. Such innovations are not only hampered
by “positive” knowledge spillovers that discourage inventors in general but also by
“environmental externalities” in the diffusion stage. In such a situation, there is obviously
an important role for innovation policy in remediating these market failures.
• Environmental innovations have some particular properties compared to most other
types of technologies. This is why there is relatively little environmental R&D. First is
the importance of government policy in creating demand by regulatory and other
environmental instruments. Second is the fact that R&D in environmental innovations is
often very complex because it usually involves various scientific and technical disciplines
and the necessary competence may not be available in the company undertaking the
research.
• Innovation policy needs to be internalised by other policy domains to be comprehensive
and perform through better integration with the demand side. Innovation becomes a pull
factor if it is part of sectoral policies and if public tenders take it explicitly into account.
These “third-generation” innovation policies have to become fully horizontal and support
a broad range of social goals if they are to achieve their objective of increasing the
overall innovation rate in societies.
Source: Dries et al. (2005).

From the perspective of environmental policy, integration into

innovation policy needs to be based on three criteria: comprehensiveness,
aggregation and consistency (Lafferty and Hovden, 2003). This leads to a
perspective for integrated policy agendas for sustainable development:
“Environmental policy integration implies the incorporation of
environmental objectives into all stages of policy making in the non-
environmental sector, with a specific recognition of this goal as a
guiding principle for the planning and execution of policy.
“Further it is accompanied by an attempt to aggregate presumed
environmental consequences into an overall evaluation of policy,
and a commitment to minimise contradictions between
environmental and sectoral policies by giving priority to the former
over the latter.” (Lafferty and Hovden, 2003)
Empirical findings from the MONIT project confirm that, to be more
easily implemented, policy integration may need some standards. The
Norwegian study identified benchmarks against which policy makers can
identify key leverage points for integrating policy. Bringing together the two
key dimensions for coherence, Lafferty et al. (2005) develop benchmarks
for horizontal and vertical environmental policy integration (Table 4.2).
Table 4.2. Benchmarks for horizontal and vertical policy integration
Benchmarks for horizontal policy integration Benchmarks for vertical policy integration
• A “constitutional” mandate providing special • A scoping report providing initial mapping
status of rights and goals in a given domain of sectoral activity with (environmental)
• An overarching strategy for the given impacts associated with key actors and
domain, with clear goals and operational processes
principles with a political mandate from high- • A forum for structured dialogue and
level authority consultation with stakeholders and citizens
• A national action plan with overarching and • A sectoral strategy for change with basic
sectoral targets, indicators and timetables goals and strategies for the sector
• A responsible executive body for co- • An action plan to implement the strategy
ordination, implementation and supervision of with priorities, targets, timetables, policy
integration processes instruments and responsible actors
• A communication plan for sectoral • A green budget for the integration and
responsibility and transparent intra-sectoral funding of the action plan
communications • A monitoring programme for overseeing
• An independent auditor with responsibility for the implementation process and its
monitoring and assessing implementation at impacts and results, with learning loops to
both governmental and sectoral levels revision of strategies and targets
• A board of petition and redress for resolving
conflicts

Although the study finds that the level of integration meets some (parts)
of the benchmarks, the overall assessment is that integration of innovation
and environmental policy has not taken place.
In line with the Finnish study on sustainable development (Hjelt et al.,
2005), this illustrates that policy integration needs to based on appropriate
agenda setting, including promoting a wide understanding and acceptance of
how innovation policy can help achieve goals for sustainable development
and vice versa.
It should be noted that policy co-ordination and integration do not only
take place between single ministries or sectors. Ministries are often
informally grouped in camps with overlapping interests (see Box 4.4 for an
example). Such grouping may have conflicting impacts: they may ease
negotiations as important positions to be negotiated are fewer, but they may
also make negotiations more difficult if these positions are less negotiable.
Box 4.4. Ministerial camps in Norway

There is a tension between Norwegian ministries, in particular the two camps of
“industrial ministries” like trade and industry, agriculture and fisheries, and
“welfare ministries” like social affairs and health. These two camps have quite
different outlooks on R&D policy and very different traditions and cultures,
making positions in the research committee of the ministries (DFU) quite
different. The Ministry of Science and Education has better contact with the
industry ministries, as the latter seem to have a stronger R&D policy as a means
to achieve political goals. There is no policy integration between the two camps,
e.g. to let industrial R&D be better integrated in areas of health to enhance
health technology and the relevant industrial development. Rather, such group
structures compete to some extent to have their priorities and ways of thinking
embedded in White Papers. For example, the recent White Paper on research is
tilted towards industrial issues while welfare issues are less present. In addition,
there are bilateral negotiations between ministries, as currently between the
ministries of Agriculture and of Fishery in their attempt to align their research
policies.
Source: Remøe (2005).
The challenge of co-ordination

As governments attempt to respond to greater external and internal
complexity and dynamism, policy co-ordination becomes the main vehicle
to achieve improved coherence. Table 4.5 indicates some major tools for co-
ordination and their primary function in coherence terms. Some findings

from the MONIT work illustrate the trade-off nature of policy co-ordination:
• Co-ordination mechanisms may be static and short-term rather dynamic.
This is particularly true when there is significant institutional
fragmentation and short-term considerations dominate the agenda
setting. Co-ordination may be reduced to annual budget-related
decisions and decentralised to implementing institutions rather than
serving to create long-term or strategic policy priorities.
• Designing co-ordination mechanisms takes time and requires financial
support. Efforts to co-ordinate policy need a sense of urgency to affect
policy governance. Without a sense of urgency, co-ordinating
arrangements may fail, and the system may build up resistance to later
attempts. If policy co-ordination leads to a perception of inability to
follow up responsibilities in the line of command, co-ordination is likely
to be associated with costs and will suffer. In the case of the Dutch
information society (den Hertog and de Groot, 2005), it is argued that
policy-making processes are rather slow, as strategy formulation (and
consensus seeking) involves lengthy consultations and discussions in
which quite a number of actors participate. Co-ordination and co-
operation are mostly considered when it is more or less compulsory
owing to departments’ clear responsibility in a particular area. It is less
perceived as a way of organising matters more conveniently or as a way
to speed up policy implementation. Hesitancy and loss of policy
coherence are reported as well.
• People are more decisive than structures but structures support people.
Well-functioning co-ordinating activities require personal leadership and
commitment, and policy makers should take care to ensure supportive
structures for person-based co-ordination activities.
• Different levels typically require different mechanisms. This implies
that well-functioning arrangements for co-ordination at ministerial level
may be less relevant on lower levels. The study of sustainable
development, for example, also shows that different mechanisms are
needed for different types of policy issues. Furthermore, in some cases
successful co-ordination on one level reduces the need to invest in co-
ordination on another. This may depend on the “political urgency” of the
issue. In cases where there is low long-term potential for conflicting
policy issues, co-ordination at the implementation level can compensate
for the lack of co-ordination in agenda setting, but when there is a high
short-term potential for conflict, the basis for policy integration must be
determined when setting the agenda.

• As in the innovation system, there is a need to identify strong and weak

links in the system. Appropriate analysis of failures of co-ordination
may make it easier to design and implement targeted co-ordination
arrangements.
Table 4.5. Co-ordination tools and coherence
Co-ordination tools Horizontal coherence Vertical coherence Temporal coherence

Policy frameworks X X
Policy councils/platforms X X
White Papers X
State budgets X
Government committees X
Task forces X
Informal networks and X
negotiation
Agency development X
Co-ordination with regions X
Monitoring systems X X X
Merging ministries X
Joint programmes X
Providing learning to policy processes
Policy learning
Learning, evaluation and accountability all become more important as
governance structures change and decision making become more complex.
The general trend towards NPM modes of governance has taken place with a
view to increasing accountability. But the very same trend increases
complexity as well. Governments therefore need to find better ways to
produce, disseminate and use policy-relevant knowledge.
Policy learning implies seeing policy makers and other actors linked to
the policy-making process as endogenous to the overall innovation system.
An evolutionary view of policy learning implies that policy making is itself
an evolutionary process with institutional change and innovation as inherent
outcomes (van der Steen, 2000).

Evaluation of innovation policies and their instruments is key to policy

learning, but is seldom institutionalised and implemented to accommodate
such a role. For example, studies in Austria illustrate the marginal role of
evaluation, as evaluation results are mostly used to legitimise programmes
ex post rather than integrated in the learning process (Table 4.6).
Table 4.6. Use of evaluations in Austria
Impacts of conducted evaluations
N %
Ex post legitimating of the programme 27 90 %
Re-allocation of funds 10 33 %
Input for stop-or-go decisions 6 20 %
Substantial change of funding policy 9 30 %
Change of processes 2 7%
Other 9 30 %
Total 30
Source: OECD TIP survey, Jörg (2005).
Emergent policy making

NPM generally results in improved accountability and a stricter
interface between policy making and implementation. However, it may also
point to potential loss of the capacity of the state to govern innovation policy
(Grande, 2001). Findings from policy studies in the MONIT project suggest
that complex, comprehensive policy areas like the information society and
sustainable development require a great effort on the part of governments to
make these areas coherent. Both structural and cross-sectoral complexity
requires close policy attention. Such policy areas typically cut across sectors
and ministries’ competencies and represent a degree of comprehensiveness
that exceeds the knowledge available for traditional governance practices.
This finding may be further fine-tuned:
• Emergent policy making is different from traditional, bureaucratic
policy making, is less downstream-oriented and relies less on
hierarchical control and information systems. It relies more on flexible,
decentralised management practices, appropriate learning and flexibility.
A high degree of self-organisation under a broader strategic objective
from the top is typical.
• To achieve coherence, formal co-ordination may not be needed. In fact,

co-ordination is a costly process, and comprehensive policy areas may
be better off with indirect co-ordination that supports self-organisation
and development and use of policy-relevant knowledge. Too deliberate
co-ordination schemes may reduce collaborative behaviour and lead to
inefficiencies.
• By-pass operations which circumvent existing structures with new
arrangements often emerge to tackle these complex policy issues and
may be more efficient in achieving coherence.
The Norwegian information society study shows that the country’s
comprehensive e-Norway policy has a different influence on the policy
cycle and a different functional impact than smaller-scale policy schemes.
The larger the policy scheme, the less the traditional, downstream or
deliberate policy-making style is effective (Pedersen, 2005).
Similar lessons are derived from the Austrian study on the information
society (Ohler et al., 2005). Two attempts to establish an overarching
information society strategy failed. However, they had a mobilisation effect
and triggered initiatives in the various information society domains. They
showed that there are only weak links between STI policy and sectoral
policies (e.g. transport and ICT). There is also co-ordination fatigue: co-
ordination is (perceived as) a costly and time-consuming activity and there
is a tendency to minimise co-ordination efforts.
The importance of emergent policy making is also supported by another
lesson from the Austrian case. Often, coherence is not achieved by
consensual policy planning, but stems from actions of an agent of change
able to act as a point of orientation or centre of gravity for other players.
Such an agent can however also use its position to implement formal co-
ordination mechanisms that would not otherwise be developed.
Horizontal monitoring
Emergent policy making for comprehensive, cross-cutting policy areas
requires well-developed information and learning systems. An example of
such a system is illustrated in Figure 4.4, taken from the Norwegian
environmental monitoring system. Innovation policy that cuts across
ministerial boundaries will need management and documentation systems
based on mandatory reporting on progress on given indicators in each area.

Figure 4.4. The main elements of the National Environmental Management System
(NEMS)
c) a) Cross-sectoral analysis
Result and MoE’s bi -annual by the MoE and relevant
Documentation Directorates
System (RDS) reports
Administered by the
Norwegian Pollution Control
Authority (SFT)
c) b)
Sectoral environmental Sectoral
reporting environmental plans
by the ministries
by the ministries
Source: Ruud and Mosvold Larsen (2004).
All countries organise evaluation and assessment activities linked to the

policy cycle in one way or another. The information and documentation
presented in Figure 4.4 is but one example. However, it is also generally the
case that monitoring and benchmarking are not coupled with policy
evaluation. For example, they are seldom used for evaluation purposes to
analyse the impact of information society or ICT policies – which would
require advanced evaluation studies – but to analyse their position vis-à-vis
competing countries and to motivate adaptation or more intense policy
efforts, which are mostly presented in separate policy documents. Policy
design, monitoring and benchmarking, and policy evaluations, where
available, take place separately. Policy learning is therefore mainly
piecemeal.
Building more intelligence into policy making

Evaluation and learning practices vary in the MONIT countries, but
some important lessons emerge:
• Policy learning is mostly ex ante through mechanisms like White
Papers, but there is less focus on ex post and follow-up of programmes
and institutional reforms. Norway provides one example of institutional

evaluation of the reform of the research council that was integrated with
the policy-making process.
• Various organisational mechanisms in place in most countries may
enhance learning if exploited properly. Task forces, teamwork, etc.,
should be institutionalised to support a more learning-intensive
governance style.
• Some countries engage in international learning beyond the usual
exchange mechanisms, e.g. in international bodies like the OECD. For
example, the Netherlands commissioned a consulting group to conduct
an international, comparative study of innovation governance in selected
countries (Technopolis, 2003).
• Piecemeal evaluation has shortcomings, and, as many reforms and
innovation policies span sectors and interact with others, there is an
increasing need to conduct more systemic evaluations in order to
improve understanding of interactions and impacts.
• With more weight given to NPM in many countries, the agency level
should be better equipped with strategic and intelligence functions to
better co-ordinate governance levels.
• Fragmented governance structures often represent a loss of strategic
capacity, and governments should pay more attention to improving
mutual understanding of innovation-related issues across ministries.
• Institutions for knowledge production and policy analysis are often
linked sectorally to specific ministries and domains; this may reinforce a
segmented culture that makes it difficult to produce coherent, policy-
relevant knowledge.
• Intelligence and policy learning may get a boost from the
implementation of monitoring and reporting systems that improve the
joint knowledge base for innovation governance.
• Structural challenges often require governance processes that include
changes in trajectories and infrastructures over a longer time span. A
focus on transition management may create a comprehensive platform
for innovation governance (Box 4.5).

Box 4.5. Transition management
Transition management implies a policy process that is different from existing

processes in extent, duration, and approach:
• It is built on policy integration and horizontal co-operation between policy agents is a

fundamental condition because it supports the co-ordination of system actors and
creates new possibilities for interaction in the transition.
• It sets long-term goals whereas policy today is dominated by short-term concerns. It is

essential to treat the short-term agenda in a long-term perspective. The transition
agenda sets no fixed long-run objectives, but formulates a shared concept of
sustainable development as a point of departure to co-ordinate existing and new
initiatives.
• The particularity of transition management is that it stresses the challenges in the path
towards an end state. It redefines the role of policy as “modulation” agent, with
conflicting time scales in the transformation at different systemic levels and different
subsystems. This is achieved through the organisation of project-based learning
experiences and policy experiments in co-ordinating the different time scales of
different institutional processes.
Source: Dries et al., 2004.

IMPLICATIONS FOR POLICY: TOWARDS NATIONAL CAPABILITIES IN INNOVATION GOVERNANCE – 67
Chapter 5
Implications for Policy:

Towards National Capabilities in Innovation Governance
OECD countries face a number of both common and nation-specific

challenges in terms of accommodating governance structures and
processes to a changing world. Tensions and inertia are typical of all
countries, and most need to develop long-term strategies for growth and
change while inducing changes in governance practices, institutions and
learning capabilities.
National capabilities
The results reported illustrate a number of dilemmas and implications

for innovation policy governance in OECD countries. Globalisation, a more
innovation-driven economy, structural change, ageing of populations, tight
fiscal constraints, etc., drive governments to make long-term changes in
their innovation systems and socio-institutional changes in governance and
policy-making. They face several dilemmas in this process, for example:
• Significant tensions between disparate cultures, priorities and
constituencies signify that traditional governance structures are under
pressure. Governments must manage these tensions with the goal of
creating a legitimate basis for coherent agenda setting.
• History counts and represents strong inertia for governance.
Governments need to renew governance and institutions, and these
adjustments are difficult to induce as corporatist and other influences
take part in prioritisation.
• Many countries have a great need to develop long-term strategies for
growth and change, but may lack the institutional resources and
mechanisms to do so. Perceived challenges are all too often not met as
inherent short-termism maintains its grip.
The material presented in this report points to a number of issues that
need to be addressed in third-generation innovation policies. They hint at
some important capabilities required of governments.

68 – IMPLICATIONS FOR POLICY: TOWARDS NATIONAL CAPABILITIES IN INNOVATION GOVERNANCE
Balancing imperatives: Innovation policy is generally compatible with

most policy areas, despite differences in their need for growth. However,
social and environmental policy and, more generally, sustainable
development policy, have different or even opposing objectives and
requirements. The increasing debate on climate change and carrying
capacity makes it necessary for government to promote a growth model that
limits negative pressures on environmental and social objectives.
Creating a vision: Vision plays an important role in the integrative
potential of political leadership. It can communicate a rationale, objectives
and preferences, and create a legitimate basis for priorities that may
otherwise be difficult to justify. An effective vision will also facilitate co-
ordination of ministries and agencies through joint understanding of the goal
of common efforts.
Developing appropriate knowledge bases: The innovation system
approach argues strongly for networking and collaboration among actors, as
does third-generation innovation policy, with its focus on broader, more
comprehensive agendas. To overcome inertia, governments need to ensure
appropriate knowledge bases and find ways to promote policy-relevant
knowledge. Such knowledge should include insight into the sources and
consequences of current dynamic changes and a good understanding of how
policy areas interact to create incentives or disincentives for innovators. It
should also include better collective understanding of innovation policy on
the part of governments and of its potential role in strategic approaches to
sustainable economic development.
Developing a strategic horizontal approach: Many countries lack a
strategic focus, while others have established institutions like science and
technology policy councils. The MONIT material indicates that these may
be too narrow, as they often concentrate on core science, technology and
innovation (STI) policies. A strategic horizontal approach needs to include
and develop the innovation policy potential in other ministerial domains and
ensure a co-ordinated division of labour between them. This becomes more
important because of social issues (e.g. welfare issues) that need to be better
integrated with innovation. This implies a definition of innovation policy
that goes beyond the sectoral approach.
Designing agencies: Because most governments have introduced NPM
practices, the design of agencies and their interface with their principals
(ministries) become crucial. Governments should design agencies so as to
create an effective division of labour between the two layers. While
governments should retain long-term policy competence, they should give
agencies a sufficient degree of flexibility to ensure coherent and timely
implementation of policies and programmes. In particular, micro-
IMPLICATIONS FOR POLICY: TOWARDS NATIONAL CAPABILITIES IN INNOVATION GOVERNANCE – 69
management of agencies is counterproductive if the goal is to achieve

coherent governance. It will be of great importance to better exploit learning
gained through reform and implementation processes.
Developing pragmatic public-private interfaces: Over the years, the
interface between the public and private sectors has shifted from strong state
intervention (up until the early 1980s) to much less intervention under NPM.
While sound macroeconomic policies and framework conditions are a must
for modern innovation policy, there is great potential for more pragmatic
interfaces. These could include balanced stakeholder mechanisms as well as
cluster policies which offer greater potential for packaging a number of
policy areas in a given cluster. Effective interfaces are needed to leverage
longer-term priorities and manage transitions in structures and
infrastructures.
Integrating learning in governance practices: To achieve horizontal as
well as vertical coherence, governments need to draw on the support that
knowledge offers. This points to the need to manage an appropriate
knowledge base and include it for policy purposes, but the MONIT material
also implies that governance and co-ordination modes might be improved in
order to promote learning processes throughout the system. In particular,
governments should develop ways to introduce what this report terms
“inherent policy making”, which combines learning with decentralisation
and increased self-organisation.
Develop and implement action plans with monitoring and reporting
systems: Third-generation innovation policy cannot be properly
implemented without precise targets and intelligent follow-up. Governments
should increase their capacity to develop actions plans based on horizontal
strategic approaches and translate these into concrete measures to be taken
by each ministry or agency. This will enhance vertical coherence, with
monitoring and indicator systems ensuring sound reporting of empirical
results to the strategic apex. This is tightly linked to evaluation and learning.
Improving evaluation and learning: Evaluation practices in MONIT
countries are mostly piecemeal and far less geared towards informing policy
than they might be. In general, governments should create a solid basis for
evaluation and learning and integrate it into the policy-making process. This
includes evaluation of broader reforms, as knowledge about the impact of
innovations is useful for feedback and policy formulation. A more holistic
approach to evaluation and learning will enhance the reflective capabilities
of the governance system and lead to more effective policy.
Conducting meta-evaluations: Policy makers should invest more in
evaluating the broader institutional framework and policy mix than they
presently do. Evaluations are often limited, and policy makers lack systemic
70 – IMPLICATIONS FOR POLICY: TOWARDS NATIONAL CAPABILITIES IN INNOVATION GOVERNANCE
insights into the policy set-up. As governments themselves, through

segmentation and bureaucratisation, tend to reinforce a segmented
understanding of the system, such meta-evaluations may prove highly useful
for overall, strategic learning among policy makers.
Directions for further work
The two years of the MONIT project have left several questions
unanswered. Seeing the NIS project and the MONIT project as a continuum,
some directions for further work are indicated.
Evaluation and learning practices. These lie at the heart of
comprehensive, coherent policy making, but the MONIT project has shown
that there is insufficient attention to these practices. A joint effort in the TIP
working party might contribute.
Agency management and policy implementation. Continuing
restructuring and development of governance practices indicate that the
agency level is gaining in importance but its role in implementing policies in
a setting with multiple principals lacks sufficient focus.
Integrating mechanisms between policy areas. Tools are needed for
mutually supportive policies and instruments.
Stakeholder participation. This includes both the policy level, through
various councils or other means, as well as programme management and
project selection. Work should also address the impact in terms of inherent
priorities, preferences for established industries and long-term
commitments.
Improved methods for country peer reviews of policy mixes and
governance practices. It becomes more important to understand the
strengths and weaknesses of a national innovation and governance system
on its own merits in addition to learning and benchmarking based on
indicators.

PARTICIPATION – 71
Annex A
Participation
Country WP 1: Governance Information society Sustainability / transport Regional policy

Australia X
Austria X X Both
Belgium X Sustainability
Korea X
Finland X X Sustainability
Greece X X
Ireland X X
Japan X
Netherlands X X
New Zealand X
Norway X X Sustainability X
Sweden X X
Switzerland

72 – STI PERFORMANCE OF PARTICIPATING COUNTRIES
Annex B
STI Performance of Participating Countries
Australia
AUS Mean
A2 PATENTS
3
2
D3 KNOWLEDGE INVESTMENTS A3 SMEs SHARE IN R&D
1
-1
-2
C2 BUSINESS FINANCED R&D AT GOV. -3 A6 INWARD FDI STOCK
C1 BUSINESS FINANCED R&D AT HEI A7 DIRECT GOV. FUNDING OF BUS. R&D
B3 BASIS RESEARCH

STI PERFORMANCE OF PARTICIPATING COUNTRIES – 73
Austria
AUT Mean
A1 INNO-EXP
2
1
0
-2
-3


Belgium
BEL Mean
A1 INNO-EXP
2
1
F1s % INNOV. FIRMS SER. 0 A5 EMPLOYM. IN HT SERV.
-1
F1m % INNOV. FIRMS MAN. A6 INWARD FDI STOCK
-2
DX VENTURE CAPITAL -3 BERD

C2 BUSINESS FINANCED R&D AT GOV. B4 SHARE RES. POL IN OVERALL BUDGET
C1 BUSINESS FINANCED R&D AT HEI

Greece
EL Mean
A1 INNO-EXP
F2 LABOUR PROD. (HOUR WORKED) 2 A4 EMPLOYM. IN MT/HT MANUF.
1
DX VENTURE CAPITAL A5 EMPLOYM. IN HT SERV.
0
-1
D3 KNOWLEDGE INVESTMENTS A6 INWARD FDI STOCK
-2
-3
D2 PARTCIPATION LLL BERD
D1 TERTIARY EDUC. (25-64) A7 DIRECT GOV. FUNDING OF BUS. R&D
C4 SHARE OF CO-OP INNOVATORS B1 S&E GRAD. (20-29)
C2 BUSINESS FINANCED R&D AT GOV. B2 PUBLICATIONS/MILLION

Finland
FNL Mean
A1 INNO-EXP
2
1
-1
-2
DX VENTURE CAPITAL -3 BERD

C2 BUSINESS FINANCED R&D AT GOV. B4 SHARE RES. POL IN OVERALL BUDGET
C1 BUSINESS FINANCED R&D AT HEI

Ireland
IRL Mean
A1 INNO-EXP
F3 AAG VA IN MT&HT / GDP 3 A2 PATENTS

2
1
F1m % INNOV. FIRMS MAN.

0 A6 INWARD FDI STOCK
-1
-2
-3


Japan
J Mean
A1 INNO-EXP

2
1
DX VENTURE CAPITAL
0 A5 EMPLOYM. IN HT SERV.
-1
D3 KNOWLEDGE INVESTMENTS A6 INWARD FDI STOCK
-2
-3
D2 PARTCIPATION LLL BERD
D1 TERTIARY EDUC. (25-64) A7 DIRECT GOV. FUNDING OF BUS. R&D
C4 SHARE OF CO-OP INNOVATORS B1 S&E GRAD. (20-29)
C2 BUSINESS FINANCED R&D AT GOV. PhDS/10.000 INH.
C1 BUSINESS FINANCED R&D AT HEI B2 PUBLICATIONS/MILLION

B4 SHARE RES. POL IN OVERALL BUDGET B3 BASIS RESEARCH

Netherlands
NL Mean
A1 INNO-EXP
2
1
0
-2
-3


New Zealand
NZL Mean
A1 INNO-EXP
F3 AAG VA IN MT&HT / GDP 3 A2 PATENTS
2
F2 LABOUR PROD. (HOUR WORKED) A6 INWARD FDI STOCK
1
F1s % INNOV. FIRMS SER. 0 BERD
-1
F1m % INNOV. FIRMS MAN. -2 A7 DIRECT GOV. FUNDING OF BUS. R&D
-3
DX VENTURE CAPITAL B2 PUBLICATIONS/MILLION
D3 KNOWLEDGE INVESTMENTS B3 BASIS RESEARCH
D1 TERTIARY EDUC. (25-64) B4 SHARE RES. POL IN OVERALL BUDGET
C4 SHARE OF CO-OP INNOVATORS C1 BUSINESS FINANCED R&D AT HEI

C2 BUSINESS FINANCED R&D AT GOV.

Norway
NOR Mean
A1 INNO-EXP
2
1
-1
-2
D3 KNOWLEDGE INVESTMENTS -3 BERD
D2 PARTCIPATION LLL A7 DIRECT GOV. FUNDING OF BUS. R&D
D1 TERTIARY EDUC. (25-64) B1 S&E GRAD. (20-29)
C4 SHARE OF CO-OP INNOVATORS PhDS/10.000 INH.
C2 BUSINESS FINANCED R&D AT GOV. B2 PUBLICATIONS/MILLION

C1 BUSINESS FINANCED R&D AT HEI B3 BASIS RESEARCH
B4 SHARE RES. POL IN OVERALL BUDGET

Switzerland
SUI Mean
A1 INNO-EXP
3
D2 PARTCIPATION LLL A2 PATENTS
2
D1 TERTIARY EDUC. (25-64) 1 A3 SMEs SHARE IN R&D
-1
C2 BUSINESS FINANCED R&D AT GOV. A4 EMPLOYM. IN MT/HT MANUF.
-2
-3
C1 BUSINESS FINANCED R&D AT HEI A5 EMPLOYM. IN HT SERV.
B4 SHARE RES. POL IN OVERALL BUDGET A6 INWARD FDI STOCK
B3 BASIS RESEARCH BERD
A7 DIRECT GOV. FUNDING OF BUS. R&D

Sweden
S Mean
A1 INNO-EXP
2
1
0
-2
-3


84 – SHORT LIST OF INDICATORS
Annex C
Short List of Indicators

Indicators used for assessing STI performance of national innovation systems
(including original source)
Indicator Source
A. Innovation in the company system
5 A1 Innovation expenditures (% of all turnover in manufacturing) EIS, p. 16
7 A2 Patents in triadic patent families per million population (1997) CIBE
SMEs share of national R&D performance (% of total business R&D
10 A3 1999) OECD STI, p.119
Employment in medium and high tech manufacturing (% of total
13 A4 workforce) EIS, p. 6
14 A5 Employment in high tech services (% of total workforce) EIS, p. 7
15 A6 Stock of inward FDI (% of GDP) UNCTAD
17 Business expenditure on R&D (BERD) (% GDP) EIS, p. 9
18 A7 Direct government funding of business R&D OECD STI , p. 115
B. Knowledge generation through education and research system
1 B1 New S&E graduates (% 20-29 years age class) EIS, p. 3
number of PhDs per 10.000 inhabitants IRCE, p. 11 (Fig. 1.2.1)
4 B2 number of publications per million population IRCE, p. 37 (Fig. 3.2.1)
7 B3 Basic research as a percentage of GDP CIBE
10 B4 Share of annual government budget allocated to research IRCE, p. 21 (Fig. 2.3.1)
C. Industry-science linkages
1 C1 Business-financed R&D performed by higher education as a % of GDP CIBE
C2 Business-financed R&D performed by government as a % of GDP CIBE
Percentage of innovative firms co-operating with other firms,
5 C4 universities or public research institutes IRCE, p. 42
D. Absorption capacity (aspects of demand, infrastructure and framework conditions – very partial!)
2 D1 Population with tertiary education (% of 25-64 years age classes) EIS, p. 4
3 D2 Participation in life-long learning (% of 25-64 years olds) EIS, p. 5
4 D3 Investments in knowledge as a percentage of GDP OECD STI, p.285
1 E1 Seed and start-up venture capital (investment per 1000 GDP) IRCE, p. 28 (Fig. 2.5.1)

SHORT LIST OF INDICATORS – 85
Indicator Source
F. Overall performance
1m F1m Share of innovative firms as a percentage of all firms (manufacturing) Eurostat
1s F1s Share of innovative firms as a percentage of all firms (services) Eurostat
2 F2 2) Labour productivity/CAGR, GDP per hour worked IRCE, p. 47 (Fig. 4.1.2)
3) average annual growth of value added in high and medium tech as
4 F3 compared to average annual growth of GDP IRCE, p. 52 (Fig. 4.2.3)
4) average annual growth of employment in high and medium tech as
4 F4 compared average annual growth of total employment IRCE, p. 53 (Fig.4.2.4)
Sources: EIS = European Commission (2002),“2002 European Innovation Scoreboard: Technical Paper No. 4
Indicators and Definitions”
OECD STI = OECD (2002), OECD Science, Technology and Industry Outlook.
UNCTAD (2002), World Investment Report 2002; www.unctad.org/Templates/Page.asp?intItemID=2441&lang=1.
IRCE = Report by STRATA-ETAN Expert Group (2002), “Benchmarking National Research Policies: The Impact
of RTD on Competitiveness and Employment (IRCE)”, Brussels.
CIBE = OECD (2002), “Comparative Innovation Performance: Countries and Policies for Review”, internal
working document.
Eurostat, CIS-2 (CD-Rom).
IRCE Annex = “Annex to the Progress Report on Benchmarking of National Research Policies. A Set of
Commented Indicators on 4 Themes”.

86 – LONG LIST OF INDICATORS
Annex D
Long List of Indicators

(Basis for Annexes B and C)
Indicator Source
A. Innovation in the company system
1 % sales of new-to-market products EIS & IRCE
Share of firms introducing new or technologically improved products or processes on
2 the market CIBE
EU RTD, IRCE, also
3 Business exp. on R&D as a % GDP CIBE
4 Triad patents per capital EU RTD, IRCE
5 A1 Innovation expenditures as a % of total sales EIS, IRCE
6 A2 Business researchers per 10.000 labour force CIBE
7 A2 Patents in triadic patent families per million population CIBE, close to IRCE
8 A4 EPO high tech applications EIS
9 A5 USPTO high tech applications EIS
10 A3 SMEs share of national R&D performance STI, 2002, p. 119
11 A7 SMEs innovating in house EIS
Percentage of firms innovating with and without co-operation as a share of all
12 A8 (innovating firms STI, 2002, p. 137
13 A4 Employment in high tech manufacturing EIS
14 A5 Employment in high tech services EIS
15 Inward FDI stock as a % of GDP EIS, orig.UNCTAD
B. Knowledge generation through education and research system
1 B1 S&E engineering graduates as a % of working population IRCE/EU RTD
2 Governmental exp. on R&D as a % of GDP IRCE
3 Higher education exp. on R&D as a % of GDP IRCE
4 B2 number of publications per million population IRCE
5 R&D performed by non-business R&D as a % of GDP CIBE
6 Non-business researchers per 10.000 labour force CIBE
7 B3 Basic research as a percentage of GDP CIBE
8 Scientific and technical articles per million population CIBE
9 Total researchers per thousand labour force STI, 2002, p. 44
10 B4 Share of annual government budget allocated to research IRCE Annex, p. 21

LONG LIST OF INDICATORS – 87
Indicator Source
C. Industry science linkages
Business-financed R&D performed by government or higher education as a % of
1 C1 GDP CIBE
2 Scientific papers cited in US-issued patents CIBE
3 Publications in the 19 most industry-relevant scientific disciplines per million population CIBE
OECD, STI, 2002, p.
4 C2 Direct government funding of business R&D 15
Share of innovative firms co-operating with other firms, universities or public
5 C3 research institutes IRCE Annex, p. 42
D. Absorption capacity (aspects of demand, infrastructure and framework conditions
1 % GDP spent on education IRCE/OECD
2 D1 % working population with 3rd level degrees IRCE/EIS
3 D2 Participation in life long learning IRCE/EIS
OECD, STI 2002, p.
4 D3 Investments in knowledge as a percentage of GDP 25
5 Share of population between 25-64 years participating in education and training
E. Other system indicators
Volume of venture capital investment in early stages (seed and start-up in
1 E1 relation to GDP IRCE Annex, p. 28
F. Overall performance
1 F1 Share of innovative firms as a percentage of all firms (split between manufacturing and services
2 Labour productivity (EU/adjusted and updated, see Ch 2 (IRCE, in fact 2 measures:
2 1 Labour productivity in GDP/hour worked in PPS IRCE Annex, p. 46
2 F2 2 Labour productivity/CAGR, GDP per hour worked
3 Relative trade performance in high tech goods OECD also IRCE
4 Share of value added of high- and medium tech industries
4 1 In total output IRCE Annex, p. 50
4 2 In total employment Idem, p. 51
3 Average annual growth of VA in high and medium tech as compared to average
4 F3 annual growth of GDP Idem p. 52
4 Average annual growth of employment in high and medium tech as compared
4 F4 average annual growth of total employment Idem p. 53
5 Various technology balance of payments indicators IRCE Annex, p. 56-58
6 World market share of exports of high tech products IRCE Annex, p. 60
1 share latest available year
2 CAGR
PPS = purchasing power standards. These are a fictive currency unit that eliminates differences in purchasing power,
i.e. different price levels, between countries. Thus, the same nominal aggregate in two countries with different price
levels may result in different amounts of purchasing power. Figures expressed in Purchasing Power Standards are

88 – LONG LIST OF INDICATORS
derived from figures expressed in national currency by using Purchasing Power Parities (PPP) as conversion factors.
These parities are obtained as a weighted average of relative price ratios in respect to a homogeneous basket of
goods and services, both comparable and representative for each country. They are fixed in a way that makes the
average purchasing power of one Euro in the European Union equal to one PPS. The calculation of GDP in PPS is
intended to allow the comparison of levels of economic activity of different sized economies irrespective of their
price levels. It is less suited for comparisons over time. Eurostat compiles PPP and presents them in the AUX_IND
domain of New Cronos\theme2.
[http://europa.eu.int/comm/eurostat/newcronos/reference/sdds/en/regio/gdp95_sm.htm]
Sources: EIS = European Commission (2002),“2002 European Innovation Scoreboard: Technical Paper No. 4
Indicators and Definitions”
OECD STI = OECD (2002), OECD Science, Technology and Industry Outlook.
UNCTAD (2002), World Investment Report 2002; www.unctad.org/Templates/Page.asp?intItemID=2441&lang=1.
IRCE = Report by STRATA-ETAN Expert Group (2002), “Benchmarking National Research Policies: The Impact
of RTD on Competitiveness and Employment (IRCE)”, Brussels.
CIBE = OECD (2002), “Comparative Innovation Performance: Countries and Policies for Review”, internal
working document.
Eurostat, CIS-2 (CD-Rom).
IRCE Annex = “Annex to the Progress Report on Benchmarking of National Research Policies. A Set of
Commented Indicators on 4 Themes”.

SUMMARY OF THE MONIT SUSTAINABLE DEVELOPMENT POLICY CASE STUDY – 89
Annex E
Summary of the MONIT Sustainable Development Policy

Case Study
Mari Hjelt, Gaia Oy, Finland

Ilse Dries, Flemish Environment Ministry, Belgium
Peter van Humbeeck, Commission for Environment and Economy of the Social-
Economic Council of Flanders (SERV), Belgium
Jan Larosse, IWT Flanders, Belgium
Olav Mosvold Larsen, ProSus – University of Oslo, Norway
Audun Ruud, ProSus – University of Oslo, Norway
Katy Whitelegg, ARC Systems Research GmbH, Austria
Brigitte Ömer-Rieder, ARC Systems Research GmbH, Austria
Introduction
This annex summarises the results obtained from four countries

(Austria, Belgium, Finland and Norway) participating in the Case Study on
Sustainable Development of the OECD Monitoring and Implementing
Horizontal Innovation Policy (MONIT) study. It is based on the reports
produced for each country and on the results of several workshops focused
on observations across the countries.
The focus is on the main questions posed by the MONIT project and the
implications and recommendations for co-operation between environmental
and innovation policy that emerge. It draws on, but does not detail, the
multifaceted and complex descriptions of the evolution of sustainable
development and environmental policy in each country. Nor does it describe
the recommendations applied to these individual policy sectors. More
information on these areas can be found in the individual country reports
(OECD, 2005a; 2005b).
The focus of the MONIT work and this summary is on innovation
policy, but the precise definition of this policy domain was at the same time
one of the key challenges of the MONIT work. Throughout the project, the
core of innovation policy has been defined as the domain of science and

90 – SUMMARY OF THE MONIT SUSTAINABLE DEVELOPMENT POLICY CASE STUDY
technology (S&T) policy, with strong links to industrial, employment and

regional development policies. However, each participating country in the
work on sustainable development had to modify this definition to reflect its
own national conditions. This summary still refers innovation policy mainly
to S&T policy and evidence collected in the past has also mostly focused on
S&T policies. However, in recent years the scope has been significantly
widened to include complementary assets for successful innovation, such as
venture capital, education and training, entrepreneurial and management
skills and intellectual property rights (IPR), which are in related policy
domains. In the future, innovation policy may extend beyond these
traditional sectoral domains if “third-generation innovation policy”
integrates the innovation needs of all domains that can help to advance the
knowledge society. The obvious candidates for such a “wedding” are
environmental policy and other key policy domains for sustainable
development, which are in need of new technological and organisational
solutions. It is important to recall that innovation policy as well as
sustainable development policy domains are continuously evolving.
The challenge of summarising the work of the different countries is the
variety of analytical frameworks used in the case studies. Although the key
MONIT questions and general project framework were followed, every
country specified a methodology that fit the discussion into current debate.
This has led to an exciting range of discussions on how governance should
be conceptualised. For example, the Norwegian case study relies heavily on
the research tradition of assessing the success of environmental policy
integration (EPI) and the analytical approach is more explicitly related to
evaluation studies. The Flanders (Belgium) case study suggests a framework
of transition management as a basis for new policy governance. The
Austrian report draws attention to the way in which policies are formed in a
small country with highly developed and autonomous policy fields; there is
considerable informal co-operation among policy fields, but formal forms of
interaction are rare. In the Finnish case study, an approach focusing on the
policy process is used to collect experience of ways to tackle co-operation
issues. Individual country reports have in-depth discussions of these
approaches.
This summary adopts the policy cycle framework of the Finnish and
Austrian case studies to structure observations and recommendations. The
policy cycle provides a dynamic framework for monitoring policy processes
and addresses the question of what has been done and what is emerging. It
does not provide a tool to evaluate the processes or suggest what should be
done. But in focusing on the governance issue, and the status of policy co-
ordination and integration in particular, it makes it possible to derive
recommendations about the level of systemic coherence and capabilities
needed to advance integration. By structuring the discussion in this manner,

the approach is generic and applicable to any policy domain. Some generic
observations on the conditions for successful integration of innovation
policy and sustainable development can therefore be explored.
Figure E.1 gives an overview of the policy cycle. The process can be
described as consisting of eight parts that can be further divided roughly into
five main parts:3
• Agenda setting covers the processes needed to define the policy
objectives. This includes both the national strategy setting and sectoral
strategies. This part of the policy cycle is strongly influenced by
different interest groups and is based on an analysis of policy needs. It
includes the processes of understanding why certain issues are on the
political agenda and how they get there. It also includes such processes
and decisions made with the aim to set up national organisational
structures.
• Design covers the part of the policy cycle in which the issues on the
policy agenda are formulated into concrete initiatives, programmes or
policies. This involves an assessment of the situation and of the needs
and the development of concrete actions.
• Implementation refers to the implementation of the policy measures
developed in the last phase. It is important to see it as a separate phase,
as implementation is often very different from design, owing to changes
in context and practical trade-offs.
• Evaluation is an important part of the policy cycle. Here policies that
were formulated and implemented are evaluated. These evaluations are
often ex post but increasingly ex ante.
• Policy learning covers all the research, analysis and interaction
processes that together enable a strategic understanding of the
development requirements of the policy system. Policy learning is
defined as all those processes by which policy systems generate and
incorporate knowledge and understanding about: i) the underlying
causes and preconditions for policies and initiatives; and ii) the effects
of the policy and initiatives. This knowledge is derived throughout the
policy cycle and policy learning feeds back to all stages.
3. Naturally the boundaries between these parts are often vague. Also, different organisations
may cover varying parts of the cycle depending, for example, on the policy issue to be dealt
with.

Figure E.1. The different parts of the policy cycle
Agenda National Strategic

Policy
setting strategy intelligence
learning
Sector Policy
policies evaluation
Design
Implementation Performance
strategies evaluation
Instrument
Instrument Impact Evaluation
set-up
set-up evaluation
evaluation
Implementation
Characteristics of sustainable development issues in the context of

MONIT discussions
There are clear synergies between issues of interest for innovation

policy within the MONIT project and issues that have been at the centre of
sustainable development and environmental policy discussions over the last
decades. In its broad sense, sustainable development policy aims to integrate
sustainable development as a guiding principle in all government actions in
order to ensure that economic and social developments keep within
ecological limits. In the same way, competitiveness, economic wealth or
innovations that help to tackle societal challenges are issues that can be
defined as overarching governmental responsibilities, and mechanisms can
be found to integrate these principles in all governmental actions. Thus both
sustainable development and innovation tend to be very broad concepts
which are applied horizontally to policy processes across sectoral policy
boundaries and even meet on the level of the renewal of the “societal
project” that both pursue. The breadth of the concepts also results in some
vagueness, as stakeholders and policy makers tend to use the same words
with different meanings. The general guiding principle is also easily used as
a stamp to justify all actions.
In assessing the interaction between sustainable development and
innovation policies, it is challenging to define the policy processes precisely,
as both of these policy domains are evolving in a very complex and dynamic
environment. The evolution of innovation policy may take parts of the

traditional – mostly sectoral – S&T policy into a direction that includes
more interaction with other policy domains. However, this is a new trend
and it is thus not clear what innovation policy will look like in the future.
Sustainable development policy is also continuously evolving. It originated
from a very broad international perspective, with sustainable development as
a guiding principle that various government actions should follow. One of
the questions for the future is whether this broad principle should – and
can – be a clearly defined policy domain. In most countries, including the
case study countries, discussions of sustainable development still strongly
emphasise environmental issues. Environmental policy is a clearly defined
sectoral policy with a set of clearly defined objectives and the means to
reach them. Thus, the MONIT studies have also mostly focused on
environmental policy in order to collect experience from policy processes
that have already taken place.
Figure E.2 highlights the viewpoints covered in the case studies. First,
sustainable development and innovation policies are very horizontal and are
not yet (or may never be) clearly defined policy domains. The convergences
and divergences in the development path of these emerging horizontal
policies may be viewed as the potential for further interaction and
integration. Second, the evidence and observations in the case studies are
essentially from two sectoral policy domains (which are traditionally
vertically organised), namely S&T policy and environmental policy.
Figure E.2. Horizontal and vertical dimensions of policy domains of interest in this
study
Innovation policy
Horizontal dimension
Governmental responsibility Sustainable
for sustainable development development
policy
Vertical Vertical
dimension dimension
Science and technology Environmental
policy policy
Source: Adapted from Ruud and Larsen (2004).

In studying how the different policy processes interact while aiming

towards sustainable development, there are two linkages of interest. First,
there are the existing, implemented policy processes aimed at increasing the
interaction between S&T and environmental policies. Second, there is the
question of how horizontal sustainable development or environmental
principles are taken into account in the sectoral S&T policy domain.
The requirements for improving interaction and co-ordination among
sustainable development and innovation policies are clear. New, radical
innovations are needed to improve eco-efficiency to the extent required to
decouple economic growth and environmental pressure.4 New
environmental innovations also offer an opportunity for new businesses to
emerge. In the area of sustainable development challenges, improvements
have not taken place at a desirable pace when they are only based on market
conditions; further government intervention is needed in several policy
domains. The need for “systemic” innovation is rooted in a “lock-in” of the
innovation systems of industrial countries in non-sustainable growth models
that are too material- and energy-intensive.
Despite logical arguments for a win-win opportunity that may result
from more intense interaction, such co-operation between policy domains
has insufficiently developed. From the point of view of governance, certain
cultural and institutional differences between the innovation and the
sustainable development policy domain act as potential barriers to co-
operation.
• Stakeholders differ. S&T policy focuses on economic competitiveness
and technological excellence, and the most relevant stakeholders are the
business and research communities. Very little effort has been made to
engage stakeholders representing technology users in the policy process.
On the other hand, sustainable development policy has, from the
beginning, had very broad involvement of different interest groups as its
basis, groups that are often very critical of business and science.
• Policy formulation drivers differ. Sustainable development and
environmental policy are traditionally driven by international
agreements and global problems, whereas innovation policy in most
countries is very much driven by national concerns. S&T policies
traditionally aim at increasing national competitiveness and wealth,
whereas sustainable development policy is concerned with improving
4. Decoupling signifies that necessary environmental protective measures should be purusued

regardless of economic growth patterns and business cycles. In the OECD’s policy
document on how to enhance policies for sustainable development, decoupling has been
identified as a key challenge (OECD, 2001).

international governance for tackling global problems. It follows that

S&T policy will need to be more alert to international developments and
sustainable development policies will have to tackle national challenges.
policies primarily use regulative and fiscal measures, often based on
international agreements, with strict targets and rules regarding actions.
In addition, they use measures such as standards, voluntary agreements
and information sharing. In contrast, the main innovation policy
measure is resource allocation for R&D,5 and regulatory and fiscal
control of funds. Typically, sustainable development and environmental
policies have very few resources for action, while S&T policies control
the state budget’s allocations for R&D. This difference may hamper
processes aimed at designing joint actions that would require some
shared control of resources.
The challenge of increasing the interaction of sustainable development
and innovation policies is a sizeable one. Clearly there is no single action or
even single objective for joint work, so that multiple actions are required in
different phases of the policy process. This is a huge challenge for
governance structures that are traditionally vertical and conduct segmented
administration of the policy instruments.
Agenda setting
Agenda setting refers to the processes related to setting a policy’s

objectives and priorities. On the S&T policy agenda of each of the case
study countries, sustainable development, and environment-related
objectives in particular, are among the policy objectives. However,
objectives related to sustainable development are not a priority for
innovation policy in any of the countries. The main focus of innovation
policy is to support economic growth through the development of new
technologies that increase productivity and offer new functionality. As a
consequence, none of the case study countries has a clearly defined and
coherent “green innovation policy” that would cover all relevant actors and
actions. However, the relevance of sustainable development issues in
5. Among studies that list the policy measures promoting eco-efficiency or sustainable
innovations, only a few are policy measures designed and implemented within the
innovation policy domain; see Technopolis (2004).

innovation policy has, in general, increased over time and can be expected to
increase.
In each of the countries, a large amount of work has been done to define
strategies and action plans for sustainable development at the national level.
There are strategy processes and active discussions across sectoral borders.
For example, all the case study countries have national committees, working
groups or platforms for sustainable development. However, national and
sectoral strategies for sustainable development have had less impact than
expected. There is a clear need for increased and more goal-oriented co-
operation across sectoral policy domains, as isolated sectoral actions have
not had the desired impact, and there is little political commitment to the
obligations set by national strategies in many sectoral policy areas. There is
thus a need for political leadership in order to put sustainable development
items higher on the policy agenda and show real commitment to the stated
objectives.
Particularly in the area of S&T policy, there is a lack of incentives to set
strong priorities for promoting sustainable development. There have, of
course, been changes over time, and in some cases a country’s S&T policy
increases the priority of sustainable development issues. However,
sustainable development issues are also easily dropped from the agenda
when situations change. This illustrates the fact that sustainable
development and environmental issues are much more sensitive to changes
in the political landscape than innovation-related issues. The stronger – and
rising – position of innovation on the political agenda is shifting the
discourse on sustainable development from “quality of life” towards “eco-
efficiency”.
The lack of strong incentives for promoting eco-efficiency and
sustainable development within the S&T area is linked to the observed
tension in the prioritisation process between economic growth and other
objectives. As remarked earlier, there is a perception that the main objective
for innovation policy is economic growth. Thus, sustainable development
issues easily lead to situations in which the economic objectives of
innovation policy are felt to conflict with the sustainable development
objectives. There are different viewpoints on this potential source of
conflict:
• First, the potential for conflicts between the policy objectives are not
necessarily recognised or acknowledged. The idea may be posited that a
new technology will always lead to an improved situation with respect
to the environment; on the other hand, there may be strong public

opinion against technological improvements.6 If the core issues relating

to the policy objectives are not analysed in a consistent manner, a barrier
is created that prevents horizontal co-operation. This is also reflected at
the level of designing and implementing policy measures, and is further
discussed below.
• Second, it may be that the potential for conflicts or synergy is not
understood or analysed concretely. The statement that eco-efficiency is a
win-win strategy for innovation policy as well as environmental policy
is too superficial. The strategy for “sustainable growth” is an empty
statement if not followed by an action plan that creates the right balance
between short term “end-of-pipe” solutions and longer-term system
changes.
• Third, across the case study countries there was a tendency to under-
exploit the role of policies and policy makers to mediate in the area of
conflicting and/or converging interests. Innovation policy aims to create
a win-win situation for all and to be “neutral”. This leads to a tendency
to be politically rather passive. However, it becomes more difficult to
continue in this manner if innovation policy has to incorporate more and
more objectives related to sustainable development into innovation
policy.
• Fourth, agenda setting for sustainable development objectives has to be
supported by a large fractions of public opinion and politicians.
However, the governance solutions to obtain such backing also have to
resist short-term political changes. Long-term planning and social
contracts beyond the electoral cycle are therefore necessary decision
making.
Design, implementation and evaluation of policy measures
In order to use technology to solve sustainable development challenges,

potential technologies must be used and there must be a market for them.
Markets for new sustainable development innovations need to be created
and supported in part by government intervention. Market creation requires
intense interaction and co-design of policy measures that cut across policy
domains. The same is true for more far-reaching system innovations, e.g. in
energy provision, that require a combined shift in technology, infrastructure
and consumption patterns. Cluster policies can provide platforms for such
6. For example, discussions of genetically modified organisms (GMOs) are easily geared
towards the idea that innovations are only linked to unacceptable potential risks.

multi-measure and multi-actor policy design. However, co-operative policy

development is still limited.
Across the case study countries, innovation policy measures are largely
designed and implemented in isolation from environmental and sustainable
development policy measures. There is insufficient understanding of the
interaction between measures and mechanisms that promote sustainable
development (or environmental) innovations. Technology assessment is still
weak. Improving the situation requires: i) more knowledge of how policy
measures interact across domains; and ii) more intense co-operation across
policy domains in designing these measures. The issue is to find the
facilitating governance for this new kind of policy making. There is a need
for experimentation that is hampered by the inertia in the current policy
domains. Often it is necessary to bypass them with new forms of
governance.
One way to strengthen the understanding of the interaction of policy
measures is to evaluate their impact. Evaluations assessing the combined
impact of different measures in stimulating new environmental innovations
are rare. However, there is quite a strong tradition of assessing the
environmental impact of individual policy measures. Different viewpoints
on the impact of policy measures should be analysed more consistently. The
case study countries have examples of these types of evaluation activities.
Mechanisms for co-designed policy measures across domains are
generally weak. The case studies mention only a few examples of the use of
environmental expertise in S&T policy design. Particularly, one would
expect to see stronger links across policy domains in designing research and
technology development (RTD) programmes. Large programmes that
distribute R&D resources for technology development are the most
important S&T policy measures. The case study countries offer numerous
examples of very important programmes that have led to advances in
environmental technologies. For example, Finland’s national technology
agency’s (TEKES) technology programme concept is a good example of a
long-term and consistent policy measure to advance environmental
technology development. However, overall programmes in the case study
countries are executed in isolation and not linked to a broader view of how
markets develop and the role of other policy measures. There is a lack of
programme concepts that take a strong systemic perspective on innovation.
Programmes are often prepared with too little stakeholder participation,
including users as well as developers of innovations. Austria gives an
example of a more developed stakeholder participation process.
In Austria, Belgium and Finland, in contrast to Norway, there is a very
active attitude towards environmental innovations within the agencies and
units responsible for the design and implementation of S&T policy

measures. None of the countries has a clearly defined “green innovation
policy” to cover the whole S&T domain. However, strategies and work
within individual organisations – or parts of the S&T policy domain – are
considered to be at a very advanced level. They can be considered as
“autonomous” translations of the general guiding principle of sustainable
development in their own S&T domain. Examples include the Flanders
(Belgium) sustainable development “bonus” in all programmes for projects
that meet stated eco-efficiency criteria and the TEKES strategy work and
technology programmes in Finland. Although this “internalisation” strategy
is successful, without more coherent support through agenda setting for
innovation policy as a whole, these efforts tend to remain isolated, not be
linked across the policy domains, and lose momentum.
Evaluation and policy learning
The case studies show the biggest gap in horizontal activities across the
policy domains to be in the area of policy learning, including the
accumulation of strategic intelligence and attitudes towards evaluation. A
key factor in improving this is the broadening of the knowledge base within
policy domains, both S&T and others. Thus, for example, there should be
more joint actions and projects in which civil servants work across policy
domains to combine their different backgrounds in knowledge-based
decision making. The disciplines represented by the human resources within
each policy domain should also be a more balanced combination of
environmental, social and technological knowledge. In addition, S&T policy
does not have the well-developed, broad stakeholder participation that
would be needed to increase broad knowledge within the policy domain. As
remarked above, these stakeholder processes should be strengthened,
especially when designing concrete policy actions.
There is also a lack of supporting policy research. One barrier is the fact
that the research institutes in different countries are often organised in line
with the policy domains. For example, many countries have environmental
research institutes related to the environment ministry which often do very
little innovation research. This structure does not encourage cross-cutting
policy research efforts. An example of an effort to overcome this is
Finland’s environmental cluster programme, in which R&D funds were
given to a programme to foster policy research related to eco-efficiency co-
ordinated by the Ministry of Environment.
The participating countries agreed that broad evaluations are important
tools for increasing knowledge and analysing policy needs. Examples were
given of broad evaluations in which the policy domain completed an
evaluation of its actions with respect to sustainable development and more

specifically the environment. These activities can also be linked to
sustainability reports for a policy domain. Examples of broad activities in
these areas were the Austrian ministerial report on sustainability of 2003, the
evaluation of the Finnish sustainable development strategy in 2003, and the
evaluation of the Finnish Ministry of Transport and Telecommunications’
environmental programme in 2004. But more important than evaluation
reports is evaluation-based policy design. The integration of evaluation as a
policy learning experience in the policy cycle is also an issue for new
governance, in which stakeholders participate and policy makers improve
their understanding of interaction in the system. This is not a common
practice.
Technological development often proceeds slowly over decades and
sustainable development challenges are also characterised by their long time
horizon. For example, the development of new energy sources (fusion
energy) and energy investments are issues for which policy decisions need
to take into account a very long time period. Thus one would expect S&T
policy to be very active in promoting long-term thinking in policy
discussions, in order to encourage opportunities that innovative technologies
may offer in a long-term perspective. In many countries foresight studies
have become better known. However, the case studies appear to indicate that
the role of technology foresight exercises or other analytical, future-oriented
tools is minor in creating this strategic knowledge.
Common recommendations
The integration of innovation policy and sustainable development is an

emergent process. At present, the main efforts concern co-ordinating the
vertical policy domains of S&T and environmental policy. Although there
are compelling reasons to advance more quickly in order to tackle huge
societal challenges, institutional inertia is strong. Cultural divides between
policy domains have their historical origin in the functional specialisation of
institutions to serve sectoral objectives. Today’s policy agendas now have to
tackle the complex problems of climate change or global competition that
involve the combination of all resources in a horizontal way.
Therefore, the basic condition for policy integration between innovation
policy and sustainable development policy is achievement of a new social
contract for “sustainable growth”, in which the operational logics of both
domains can converge. At the same time, the establishment of a new
integrative governance structure is the precondition and the result of this
convergence. The case studies reveal that there are elements that support this

process, but that there are many more barriers to overcome to create a new
governance structure for better integrated policy cycles.
Agenda setting
• Future innovation policy aims to tackle wider sustainable development
objectives. This demands an active “internalisation” of the guiding
principle of sustainable development. Internal analytical attitudes need
to acknowledge that trade-offs must be made but also actively
operationalise win-win opportunities.
• There is a need to increase the participation of different stakeholders in
the priority-setting process for innovation policy.
• S&T policy should actively participate in the setting of priorities for
sustainable development policy in order to bring an understanding of
innovation to such discussions.
• There is a need to develop and activate processes within policy
governance (cross-cutting policy domains) that aim to resolve conflicts
and stimulate discussion on the basis of sound retrospective and
prospective evaluations.
• The integration of sustainable development and innovation in a
“sustainable growth” strategy has to be endorsed on a higher
institutional level, in the form of a “social contract” and/or long-term
planning objectives that set new “standards”.
Design and implementation of policy measures

• More active co-operation which also actively encourages and includes
wider stakeholder participation is needed across policy domains during
the design of policy measures. This involves capabilities and governance
for the design of “policy mixes” and the management of “policy
portfolios”.
• S&T policy measures should take a wider view of systemic innovations
and pay attention not only to the development but also to the use of
technologies.
• The understanding of mechanisms related to “environmental”
innovations need to be strengthened in specific cluster programmes that
address the environmental industry and the environmental challenges.

Policy learning
• Policy learning for the integration of innovation and sustainable
development policies has to contribute to organising the “policy arena”
for strategic convergence by a combination of analytical instruments and
participative methods (strategic intelligence) that support interactive
policy making.
• There is a need to strengthen research activities and to reorganise
policy-oriented research in a less sector-focused manner. This implies a
“distributed network” organisation of strategic intelligence which
combines different sectoral and stakeholder perspectives under the wider
umbrella of “horizontal” objectives.
• Stakeholder participation in the innovation policy process should be
increased as a learning process for strategic convergence.
• More, and future-oriented, tools for analysing policy needs should be
developed as instruments for managing change.

SUMMARY OF THE MONIT INFORMATION SOCIETY POLICY CASE STUDY – 103
Annex F
Summary of the MONIT Information Society Policy Case

Study
Wolfgang Polt, Joanneum Research Ltd, Austria
Introduction
This annex draws together the results from country case studies on
information society (IS) policies in seven countries (Austria, Finland,
Greece, Ireland, the Netherlands, Norway and Sweden) carried out in the
MONIT study. It is based on the reports produced in each country and on
the outcomes of several workshops in which the individual studies were
discussed and compared.
This summary aims to synthesise the main findings and draw general
lessons from the case studies. While comparative policy studies always
reveal a good deal of specificities, and even idiosyncrasies, this topic
nevertheless lends itself to generalisation and cross-country comparison:
almost all OECD member countries (and a number of non-member
countries) made efforts to design overarching policy frameworks in the
1980s and 1990s to cope with the challenges of the information society.
Even though the countries started from very different positions (with some
Nordic countries well advanced in the use of information and
communication technologies [ICT] throughout the economy, while others,
like Austria and Greece, were laggards), the design and implementation of
horizontal policies faced quite similar obstacles in terms of policy
challenges. Much policy learning can therefore be gained from the
comparisons. For the details of policy design, see OECD, 2005b.
The MONIT work looked mainly into the challenges and difficulties of
linking innovation policy with other policy areas, such as information
society policy. This meant trying to analyse the links between two policy
areas that are themselves differentiated into various sub-areas and lack clear-
cut boundaries. Innovation policy in its broadest sense includes science and
technology policy and extends to competition and regulatory policies.
However, the country studies reflected the ambiguities inherent in its
definition in their individual national contexts. Throughout the MONIT

104 – SUMMARY OF THE MONIT INFORMATION SOCIETY POLICY CASE STUDY
work, innovation policy was defined quite narrowly, and the case studies
focused mostly on science, technology and innovation (STI) policies, while
remaining aware that in recent years the concept has broadened significantly
to include education and training, entrepreneurial and management skills,
intellectual property rights (IPR), competition policy, regulation, etc.
The concept of the information society is equally indistinct, but its core
is the use and application of ICT in various sectors of the economy and
society. Thus, in their definitions of information society policy, most
countries include sectoral policies like e-business, e-government, e-learning,
e-health and others. Yet the precise mix and emphasis differ considerably
from country to country (e.g. some countries focus on the build-up of ICT
infrastructure, while others emphasise exploring best practices for societal
purposes).
An additional challenge for information society policies is horizontal co-
ordination of various sub-areas: there are, or there might be, for example,
links between e-government and e-health in terms of regulations regarding
data security, citizen involvement or technology compatibility.
The focus of the MONIT project has been on the policy process.7 The
framework is furnished by the concept of the policy cycle and its stages and
feedback loops:8 agenda setting, policy formulation, policy co-ordination,
implementation and policy learning (e.g. from policy evaluation). The policy
processes were not primarily assessed on the basis of their impact (i.e. on
the development of IS and ICT), as evaluations that systematically link the
quality of the process to impact are essentially lacking. Rather, the focus
was on: i) the immediate outcomes (i.e. whether the country had been able
to produce and implement the policy measures they aimed at; ii) the policy
coherence these processes were able to create; and iii) the governance
capabilities9 of the respective policy systems with respect to the policy cycle
(Figure F1). Therefore, lessons and recommendations concern the quality of
the process, e.g. is there scope to increase policy coherence over the policy
7. For a description of the analytical framework see W. Polt (2004.

8. Naturally the boundaries between these parts are often imprecise. Also, different
organisations may cover varying parts of the cycle depending on the policy issue to be dealt
with, for example.
9. “‘Governance’ means rules, processes and behaviour that affect the way in which powers
are exercised …, particularly as regards openness, participation, accountability,
effectiveness and coherence” (Commission of the European Communities, COM (2001)
428 final, Brussels, 25 July 2001) or: “The process by which stakeholders articulate their
interests, their input is absorbed, decisions are taken and decision makers are held
accountable.” (www.iog.ca/boardgovernance/html/gov_wha.html)

cycle? What was the experience with different institutional settings in the IS
policy field?
Figure F1. Governance capabilities and policy coherence over the policy cycle
System characteristics
- STI performance
- Institutional setting
- Policy mix
Policy coherence
- Horizontal
- Vertical
Governance capabilities - Temporal
- Perception of challenges
- Agenda setting
- Co-ordination/horizontalisation
- Implementation
- Learning
- Managing policy cycle
Source: OECD, internal working document for the MONIT project.
This framework was also applied to the IS country case studies, albeit
with differences in rigour and emphasis. Also, it was sometimes difficult to
distinguish between the different phases (e.g. between agenda setting and
policy formulation or between coordination and implementation). Thus,
these notions served as a guide rather than a rigid framework.
Agenda setting and policy formulation
IS policy rose to the top of political awareness in the 1980s and

particularly the 1990s. In the surge of the ICT boom, it was felt that ICT
offered pervasive technologies that could affect all parts of society and all
sectors of the economy. Agenda setting was very much influenced in most
countries by international policy discussions: the US initiatives for the
“information super highway” or the EU Commission’s “Bangemann
report”10 were influential starting points for defining national policy both in
10. Europe and the Global Information Society – Recommendations to the European Council,
European Commission, Brussels, 1994.

countries starting from a relatively high level (the Netherlands) and

catching-up countries (Austria, Greece). Many countries perceived the need
to formulate an overarching IS policy, and indeed all countries surveyed
have formulated such a policy. In countries like Greece, the funding for IS
policy largely came from the EU’s cohesion and structural funds (CSF). In
this case, national policy was a direct response to EU policy and the process
requirements associated with the CSF. In other countries, the Bangemann
Report and later the e-Europe initiative were conceptually important triggers
of national IS policy.
Yet the differences in how countries proceeded and the consequences
for the policy process are considerable: some countries prepared strategic
documents that had high policy visibility, others published White/Green
Papers, and still others adopted quite comprehensive “action plans”. This
implies great variety in terms of the concreteness of the agendas: some set
goals and described policy measures at a very abstract level, while others
formulated very, and sometimes overly, concrete measures. Moreover, the
emphasis on various elements of the IS policy (infrastructure, applications,
regulation, institutional structures, etc.) differs, owing, among other factors,
to the influence of different stakeholder groups (small and medium-sized
enterprises, multinational enterprises, infrastructure providers, consumer
groups, etc.). In Finland, for example, the policy agenda was largely
technology-driven and targeted towards increased competitiveness owing to
the strong policy stance of STI policy and its stakeholders.
Historical development paths are another important factor affecting the
emergence of agendas. A country’s national innovation system (NIS)
“filters” international discussions and “translates” them into national policy
agendas. The development of national agendas, and their design and
implementation, are often based on previous activities, responsibilities or
experience with earlier programmes, responsibilities for particular agendas
(especially EU), current or previously established networks, and previously
successful approval procedures. While this enhances and strengthens
established competencies, it also leads to gaps, blind spots and “ad
hoc-racy”.
While the existence of comprehensive policy documents (White Papers,
action plans) often seems to suggest a coherent strategy which links various
policy domains and actors, in reality, this is often not the case. With a few
exceptions (e.g. in Finland and Norway) most strategy documents are
merely a compilation of the various strategies and actions envisaged by
different departments or other stakeholders. Thus, even when overarching
strategy documents exist, the process of agenda setting is predominantly
context-specific, contingent and local. The question arises as to the extent to
which more rational approaches for policy formulation are possible,
i.e. policies that are: i) pro-active; ii) horizontal/global in nature; and

iii) avoid contextual randomness.
In most countries, IS policy is often not really articulated with STI
policy. In Finland, however, the process of formulating IS policies has
largely been driven by the STI policy agenda, with its emphasis on
competitiveness. Here, the policy challenge might be to include more and
broader societal goals (like e-democracy) into IS policy.
New agendas often arose with the advent of so-called “change agents”
(i.e. new actors or institutions designed to encourage change). Windows of
opportunity for change agents were especially large when changes in
government occur, especially when a new government comes into power.
New governments tend to be more active in setting directions, overcoming
barriers and disrupting current IS policy processes. However, changes in the
policy agenda – and sometimes in the institutions – also occurred in some
cases too rapidly to carry out the policies in a sustainable manner. Such
changes have to be well thought out, and support from stakeholders has to
be secured.
Implementation and coordination of IS policies
“Grand policy strategies” that do not explicitly address the question of

implementation are doomed to encounter difficulties or fail. The
implementation of IS policy strategies has been cumbersome almost
everywhere and has encountered various obstacles, some (but not all) of
which can be attributed to problems of governance and policy coherency.
On the other hand, in most countries, the handling of IS policy has given rise
to “institutional innovation”, with the creation of new bodies that should
ensure proper policy co-ordination and coherence. Ireland, for example, has
created a whole array of institutions at the level both of operative units and
of high-ranking advisory bodies to address almost all dimensions of the
policy co-ordination problem. Austria is probably at the other extreme, as
until recently no institutions were specifically created for the sustained
monitoring and steering of the IS policy process as a whole. Greece has also
chosen a radical approach by creating institutions specifically for the
implementation of IS policy in order to bypass administrative inertia.
In general, policy coherence in IS policy has been stronger when
achieved by institutional factors (specialised bodies, close links to EU
procedures) rather than by strategy papers and co-ordination mechanisms.
Definition of responsibilities, allocation of resources and setting of targets
and deadlines are necessary in order to create “process ownership”.

However, this was found to be a necessary, but not sufficient, condition for
policy processes to function.
It may also be observed that attempts to arrive at overarching IS
strategies have faced the difficulty of getting the relevant actors motivated to
work together in the same timeframe, and that some have failed (in Austria,
two attempts to arrive at such a strategy did not succeed). Some of the
reasons for such difficulties can be attributed to failures of the political
actors, but others are due to the inherent difficulties of such complex policy
making. Also, the case studies often found only weak links between some IS
policy areas and between IS policy and innovation policy, which leaves little
scope for overarching “strong governance” and hence little room for strong
policy co-ordination.
This is a reflection of the fact that the various IS domains and
innovation policy have very different policy processes. It was often
observed that within a given policy domain, policy processes successfully
built the basis for coherent development. Thus, IS policy initiatives were
very often successful: even when attempts to establish an overarching IS
strategy failed, they often had a mobilisation effect and triggered initiatives
in the different IS domains.
Another frequent observation was the limited power of many
co-ordinating bodies owing to the strong position of individual stakeholders
(departments, enterprises, intermediary institutions) and the limited
competence of the co-ordinating body. The same holds true for most of the
bodies established to formulate strategies or to aid in their formulation; for
example, the relevant Irish body was found to be of limited importance. In
the Netherlands, there is only a thin layer of co-ordination at the top, while
most policy is made mainly by departments. Thus, a co-ordinating body
without specific power to steer or supervise the process (or even allocate
funds) is very likely not to achieve very much. Means employed to
overcome this institutional problem include the establishment of change
agents with specific competences (e.g. IS envoys).
In addition, co-ordination has its costs. It implies a multitude of types of
interaction and forms of communication (such as interdepartmental
committees, working groups of stakeholders, ad hoc or permanent forums).
In countries like Austria, the Netherlands and Ireland, the actors showed a
certain level of “co-ordination fatigue”. Given a background of limited
resources, incentives to engage in the resource-consuming process of co-
ordination must be substantial. Such incentives are strongest when the
allocation of funds is involved (as in Greece with the CSF or in Ireland with
a specific IS fund), but even then co-ordination faces the problems inherent
in the respective administrative systems.
Thus, while many countries tried to secure adequate co-ordination

mechanisms on the overall policy level – and often did not achieve a great
deal – there are numerous examples of both formal and informal co-
ordination at the lower, operative levels which seem to have made progress
in implementation (e.g. co-operation between programme managers,
informal exchange between civil servants of different departments). Without
such self-organising processes, neither co-ordination nor coherence is likely
to be achieved, as the variety of actors does not readily allow for very
centralised decision making or policy implementation. Too deliberate co-
ordination schemes may reduce collaborative behaviour and lead to
inefficiencies.
Emergent policy making of this sort is different from deliberate
(traditional, bureaucratic) policy making, is less downstream-oriented and
relies less on hierarchical control and information systems. It relies more on
flexible, decentralised management practices, appropriate learning and
flexibility. A high degree of self-organisation under a broader strategic
objective from the top is typical.
Policy learning
International comparison and benchmarking has been, and is, a main

source of policy learning in the field of IS policy. EU initiatives were an
initial source of national policy design. The OECD, via its biannual
Information Technology and Communications outlooks and its working
groups within the ICCP committee has been a forum for exchange and
policy learning. At present, permanent benchmarking processes have been
established within the EU or within other international bodies for different
sub-areas of IS policy (e-government, e-business, diffusion and use of ICT
in private households, etc.). In this respect, there is a sound infrastructure for
international policy learning.
With respect to the theoretical basis of policy learning, the picture is less
positive. Policy research on the topic in the 1990s focused on the question
of whether there is still room for government intervention in increasingly
liberalised telecommunications markets (Grande, 2001) Also, policy-related
research has been mostly confined to research within the sub-domain and
specific questions of regulatory reform, competitiveness policies, etc. So far,
there has been little research on the quality and efficiency of policy
processes in this complex policy field. The MONIT exercise might have a
pioneering role in this realm.
Evaluations of IS-related policies were sometimes carried out (e.g. with
respect to specific funding programmes for ICT or for specific measures in

the educational sector, or in the Swedish case for IT policy in general), but
neither overall IS policy nor the attendant policy processes were thoroughly
evaluated. Given the relative maturity of the policy field, such an evaluation
seems overdue in all countries, but it would face challenging methodological
problems for relating the different instruments and their portfolio to the
outcomes and impacts of IS policies. Currently, the EU, the OECD and
certain countries are just beginning to apply such evaluations.
In some countries, reflections on the first phase of IS policies (and in
some cases the second) enter current policy deliberations. By adaptive
learning from history, institutional changes are considered as a reaction to
the perceived pitfalls of the current institutional settings. Currently, most
countries surveyed are looking to improve their institutional settings.
Conclusions and recommendations
When analysing IS policies against the background of the overall policy

context of a country’s national innovation system, it appeared that general
problems of the policy system were reflected in IS policies. Thus, IS policies
mostly were not a special problem area, but reflected the governance
capabilities of the policy system in general. For example, the complex
policy structures and rapidly changing policy agendas in Dutch STI policy
were also evident in its IS policies. In the same vein, the problems of
Greece’s administrative system led to a specific institutional innovation in
order to bypass the system’s inertia, but this is again apparently a problem
for all policy matters. Similarly, Austria’s policy system was unable to
produce a commonly accepted strategy document for both STI policy and IS
policy.
So far, the policy agendas of IS policy and innovation policy are not
well integrated in most countries. The same is true of the different sub-
domains of IS policy (e-government, e-health, etc.). Programmes and
initiatives are often designed without explicit or implicit reference to others.
Numerous examples from the country case studies pointed to foregone
synergies, sometimes even inconsistencies, between the respective policies.
These examples indicate that there is room for better policy coherence. On
the other hand, of course, there are also inherent limits and obstacles to
policy co-ordination (as one means to achieving policy coherence). Given
the complexity of the task, the differences between sub-fields of IS policy
and between IS policy and innovation policy, the specific rationales of the
various policy areas and the self-organising processes within and between
these areas need to be respected. The task for policy process design would
be to create institutions and bodies with incentive structures strong enough
to foster co-operation and with role assignments clear enough to allow for
“process ownership”, while at the same time allowing for sufficient self-
organisation.
The institutional innovations and experiments described in the IS
country case studies could aid policy in further adapting to the difficult
challenge of creating coherent policy in a complex policy field.
Agenda setting
Overall or overarching IS strategies are theoretically useful for creating
more coherence among policies but face a very difficult task. Apart from the
difficulty of devising and designing such a strategy, it faces the risk of not
being accepted by all stakeholders. Localised IS policy strategies are useful
both for orienting and guiding an organisation and for specifying how its
activities differ from those of other organisations.
The systematic detection of ways to improve the current strategy
(bottleneck analysis) is an alternative to the construction of overarching
strategies. It consists of identifying hindering factors and then designing
helpful measures. This approach has the advantage of being more realistic in
terms of what can be achieved and thus has a better chance of being
accepted and implemented.
One point at which agendas are strongly reformed and reformulated is
when new governments come into power and create new change agents.
They often set new directions and lead to the creation of new networks
(however, they also destroy old agendas and old networks). The deliberate
introduction of such change agents can be a sensible way to overcome
policy inertia.
Policy implementation and co-ordination

In order for concepts to become reality, it is very important to carefully
plan and carry out the implementation alongside strategy formulation. The
quality and originality of concepts and programmes are greatly affected by
the method of implementation as well as by its content. If implementation is
to be successful, adequate resources are necessary for:
• Ex ante activities, including technology foresight and assessment.
• Co-ordinating activities to involve stakeholders in all phases of the
programme.
• Outward communication, awareness-building activities.
• Use of analytical tools like evaluation, monitoring (project supervision)
and benchmarking.
Concepts, lead documents or overall strategies that are not planned with
respect to their implementation greatly risk being ineffective or having
unplanned (and undesired) effects. In the past, policy makers have tried to
outsource the implementation of initiatives; however, public organisations
need to retain some process ownership. In order to determine which duties
are to be outsourced, the contracting authority needs some managerial and
hierarchical competence. This is essential for achieving the intended results
of an initiative.
Policy learning and evaluation

Integrated learning processes, such as policy evaluation and the
establishment of information and feedback channels are necessary for
successful policy learning. A combination of local and higher-level policy
learning must exist in a complex policy area such as the information society.
The establishment and organised provision of strategic intelligence can be
ensured through various instruments (market studies, technology
assessment, technology foresight, monitoring, evaluation).
In sum, there is considerable room to increase policy coherence in the
field of IS policy. At present, there is at best a weak link between IS policy
and technology and innovation policy. On the other hand, even in the
absence of an overarching IS strategy, policy has reacted to the challenges
of the information society, although often within the framework of the
respective administrative competences. In the various sub-fields of IS
policy, failures were observed but also different ways to achieve policy
coherence, some of which have succeeded quite well. It seems clear, from
the case studies, that there may be little need to co-ordinate everything and
everybody under the umbrella of a “grand strategy”.

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Stimulating innovation is a key task for achieving sustainable economic growth. However,
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Governance
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practices to achieve better coherence and co-ordination of policies to promote innovation.
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Governance of Innovation Systems

VOLUME 1: SYNTHESIS REPORT

GOVERNANCE OF INNOVATION SYSTEMS

Volume 1: Synthesis Report

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

ORGANISATION FOR ECONOMIC CO-OPERATION

The OECD is a unique forum where the governments of 30 democracies work

This work is published on the responsibility of the Secretary-General of

Also available in French under the title:

This publication is a synthesis of collaborative OECD work in the

GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005

Executive Summary ....................................................................................................... 7

Bibliography .............................................................................................................. 113

GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005

Innovation policy in OECD countries has mostly been seen as an

Tensions in policy systems

GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005

• Competing rationales: Individual policy domains, like R&D and

GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005

• Competition and personal ambition: Tensions and contradictions in

Adapting agenda-setting institutions and practices

Many countries have recently attempted to adapt their policy making to

GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005

• Co-ordination is closely linked to agenda setting. When governments

seems to substantiate this. Moreover, successful co-ordination on one

A comprehensive innovation policy spanning ministerial boundaries

wealth, whereas sustainable development policy is concerned with

Building more intelligence into policy making

Evaluation and learning practices vary in the MONIT countries, but

GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005

• Implementation of monitoring and reporting systems that improves the

Conclusions and implications

The MONIT results illustrate a number of dilemmas and their

GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005

Creating visions that communicate: Political leadership has a strong

layers. While governments should retain long-term policy competence, they

GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005

OECD countries will increasingly need a new framework for

The MONIT project

The OECD project on National Innovation Systems (NIS) was initiated

GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005

innovation policies) to be carried out, like the NIS project, by voluntary

Dynamic economies require adaptive governance

Over the past decades, innovation policy has received increasing

GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005

more dynamic innovation policy appears to imply a need to broaden the

The third generation of innovation policy

The aim of the MONIT project was to generate a body of policy-

innovation is stimulated across a number of governmental or policy areas. It

Project organisation and outputs

GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005

The Analytical Perspective

OECD countries require greater policy coherence. To achieve this, new

Critical issues for adaptive policy systems

A key point of departure is the vantage point of firms, as policies and

GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005

leading to greater decentralisation. Still, the concept of a horizontal

Table 2.1. A taxonomy of innovation policy

Goals Sectoral innovation policy Multi-sectoral innovation policy

Innovation policy in a wider sense, Innovation policies in other sectoral Horizontal/comprehensive/integrat

Source: Pim den Hertog, Dialogic, Netherlands.

GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005

• Governments are increasingly faced with complex and difficult issues,

GOVERNANCE OF INNOVATION SYSTEMS: SYNTHESIS REPORT – ISBN-92-64-011021 © OECD 2005